##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K/A


(Amendment No. 1)


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended January 3, 2004                                                   
|          
|or        
|          
|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
    Incorporation or Organization)                 |  | (I.R.S. Employer
    Identification Number)
|                                                                                  
|2815 Scott Avenue,
    St. Louis, Missouri(Address of Principal Executive Offices) |  | 63103(Zip Code)                            

Registrants telephone number, including area code:


(314) 621-0699


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, par value $0.0001 per share


þ o


þ


o þ






DOCUMENTS INCORPORATED BY REFERENCE












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EXPLANATORY NOTE


solely

















TABLE OF CONTENTS


|                 |  |                                                                                           |    |  |    | 
|---------------- |  | ----------------------------------------------------------------------------------------- | -- |  | -- | 
|Explanatory Note |  |                                                                                           | 1  | 
|PART I           |  |                                                                                           | 2  | 
|Item 1.          |  | Business                                                                                  |    |  | 2  | 
|Item 2.          |  | Properties                                                                                |    |  | 21 | 
|Item 3.          |  | Legal Proceedings                                                                         |    |  | 22 | 
|Item 4.          |  | Submission of Matters to a Vote of Security
    Holders                                   |    |  | 22 | 
|PART II          |  |                                                                                           | 23 | 
|Item 5.          |  | Market for Registrants Common Equity
    and Related Stockholder Matters                 |    |  | 23 | 
|Item 6.          |  | Selected Financial Data                                                                   |    |  | 26 | 
|Item 7.          |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |    |  | 28 | 
|Item 7A.         |  | Quantitative and Qualitative Disclosures
    About Market Risk                            |    |  | 37 | 
|Item 8.          |  | Financial Statements and Supplementary
    Data                                           |    |  | 37 | 
|Item 9.          |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure  |    |  | 37 | 
|Item 9A.         |  | Controls and Procedures                                                                   |    |  | 37 | 
|PART III         |  |                                                                                           | 38 | 
|Item 10.         |  | Directors and Executive Officers of the
    Registrant                                    |    |  | 38 | 
|Item 11.         |  | Executive Compensation                                                                    |    |  | 39 | 
|Item 12.         |  | Security Ownership of Certain Beneficial
    Owners and Management                        |    |  | 40 | 
|Item 13.         |  | Certain Relationships and Related
    Transactions                                        |    |  | 40 | 
|Item 14.         |  | Principal Accounting Fees and Services                                                    |    |  | 41 | 
|PART IV          |  |                                                                                           | 41 | 
|Item 15.         |  | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K                      |    |  | 41 | 

1



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PART I




|        |          
|------- | ---------
|Item 1. | Business.

General








Company History






2



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Competitive Advantages




Our Reputation as a Leading
Fashion Footwear Retailer for Young Women.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We strive to be the store of choice for young women between the
    ages of 12 and 29 who seek quality, fashionable footwear at an
    affordable price. Based on our analysis of our competitors, we
    believe we are the only national, full service retailer
    specializing in serving this segment. We provide a high energy,
    fun shopping experience and attentive, personal service
    primarily in highly visible fashion mall locations.
|
| |  | The average retail prices of our private label footwear range
    from $39 to $65. We are able to offer these prices without
    sacrificing merchandise quality, creating a high perceived
    value, promoting multiple sale transactions, and allowing us to
    build a loyal customer base.                                                                                                                                                         
|
| |  | Our micro-merchandising strategy enables us to adapt our store
    inventories with the trends and demographics of individual
    locations. As a result, we are able to stock the styles our
    customers desire, increasing sales and customer loyalty.                                                                                                                                                                                               
|
| |  | Our marketing initiatives foster additional customer loyalty,
    while expanding our presence in serving our target market. This
    can be exemplified by our successful introduction of our Bakers
    Frequent Buyer Card, which our customers purchase to obtain a
    discount on all future purchases until the expiration of the
    card.                                                                                                       

A Disciplined Management
Approach.




| |   |                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We believe our senior management team combines a unique blend of
    experience with our company and other national specialty
    retailers. Our six-member senior management team averages
    approximately 24 years of individual experience in footwear
    and accessories retailing.                                                                                 
|
| |  | Our organizational structure is designed to respond to the
    changes that are inherent in our business. Our senior
    management, merchandisers and buyers work closely with our
    flexible network of manufacturing sources and efficient
    third-party distribution system to give our customers the styles
    they demand in a timely manner.                   
|
| |  | During the recent challenges in the retail environment, our
    senior management team utilized our management structure to
    effectively control overhead and our administrative operations.
    We also reacted quickly to changes in consumer demand and
    strategically reduced inventory purchases to reduce the need for
    markdowns and clearance merchandise.
|
| |  | We intend to continually focus on improving profitability by:                                                                                                                                                                                                                                                                                                              



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Leveraging our investment in corporate infrastructure. We have
    invested in technology, including integrated inventory
    management and logistics systems, point of sale systems and
    equipment, and planning and allocation systems. Because these
    information systems and personnel costs are primarily fixed, as
    net sales increase, our profitability should increase at a
    greater rate.
|
| |  | Improving our inventory turns through the use of our new
    planning, allocation and assortment planning systems, and
    through the increase in our mix of branded products, which
    should lead to fewer markdowns.                                                                                                                                                                                       
|
| |  | Constantly reviewing our store locations and proactively closing
    underperforming stores and remodeling older stores, while
    building new stores with attractive unit economics.                                                                                                                                                                                                                          

3



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Sourcing
Capabilities.




Advanced Inventory
Management Systems.






Flexible Store Location
Strategy.




Strategy




Opening New Stores in Key
Locations.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We plan to open new stores in a controlled and disciplined
    manner. Our strong relationships with landlords allow us to
    secure desirable locations in fashion malls. In selecting a
    specific site, we look for high traffic locations primarily in
    regional shopping malls. We evaluate proposed sites based on the
    traffic patterns, type and quality of other tenants, average
    sales per square foot achieved by neighboring stores, lease
    terms and other factors considered important with respect to the
    specific location.
|
| |  | Once we have identified a key location and secured a lease, we
    build our store in our distinctive new upscale contemporary
    format. We expect these new stores to average approximately
    $750,000 a year in store volume and contribute approximately
    $100,000 of cash flow per year. We have identified 200
    additional locations for new format stores and plan to open
    approximately 15 new stores by the end of                                                                                                                       

4



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | fiscal year 2004 and an additional 30 to 35 new stores in fiscal
    year 2005. We also have identified 100 of our current stores for
    remodeling into new format stores.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | While we are not currently in negotiations, from time to time,
    we will explore acquisitions of regional chains or groups of
    stores. Historically, we have been able to acquire stores at
    prices below our cost to open new stores. For example, in fiscal
    year 2002, we spent $1.8 million to acquire 33 former
    Sam & Libby locations. We spent approximately $360,000
    to convert those 33 locations into our formats. The expenditures
    consisted mainly of minor remodeling, signage, and point of sale
    equipment and software, and averaged approximately $11,000,
    excluding inventory, for each location. These costs are
    considerably below our typical cost to open a new store of
    $200,000, and accordingly, these stores have had a substantially
    higher return on invested capital.
|
| |  | Management believes that the operating infrastructure we have in
    place is capable of integrating a significant number of new
    stores with little additional increase in general and
    administrative expenses. Virtually all of our senior management
    executives have held similar positions at specialty retail
    chains of substantially greater size. We believe that our buying
    teams have sufficient levels of experience to support our
    expected new store growth. Finally, we believe that our
    information and logistics systems are scalable to support
    significant growth.                                                                                                                                                                                                                         
|
| |  | We opened a total of 41 stores in key locations in fiscal year
    2002, including the 33 former Sam & Libby stores we
    acquired. In fiscal year 2003, we opened three new stores.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Expanding Presence of New
Format Stores.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We are in the process of remodeling existing Bakers stores into
    our new format design which will provide a consistent look with
    our newly opened stores. Through January 3, 2004, 32
    existing Bakers stores have been remodeled into the new store
    format. Sales of the remodeled stores showed significant
    increases in volume after they are opened in the new format. We
    believe the new format stores average higher annual sales
    because they feature a distinctive upscale contemporary format
    that is attractive to our customers.                                                                                                                                                                      
|
| |  | Construction costs to remodel stores into the new format average
    approximately $200,000 and the remodeling requires the store to
    be closed for four to five weeks. We plan to remodel existing
    stores into the new format in locations where we believe the
    additional investment will produce a higher return on investment
    than maintaining the current format. We plan to remodel
    approximately 17 existing stores into the new format during
    fiscal year 2004 and have identified an additional 80 stores to
    be upgraded. Typically, our stores are remodeled in connection
    with a lease renewal. Construction management for the remodeling
    is provided by third party contractors for fixed fees.
|
| |  | In addition to transforming stores into the new concept, we are
    performing minor remodeling at selected stores. Typically, the
    minor remodeling is undertaken in conjunction with the signing
    of a new lease. Construction costs for the minor remodels
    average $40,000. These stores often generate lower sales volume
    but a similar return on investment. During fiscal year 2004, we
    plan to undertake minor remodeling projects at ten of our stores.                                                                                                                                                                                                                                                              

Continuously Introducing New
Merchandise to Maintain Inventory Freshness.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We keep our product mix fresh and on target by constantly
    testing new fashions and actively monitoring sell-through rates
    in our stores. Our team of footwear retailers, in-house
    designers and merchants use their industry experience,
    relationships with agents and branded footwear producers, and
    their participation in industry trade shows to analyze,
    interpret and translate fashion trends affecting todays
    young women into the footwear and accessory styles they desire.
|
| |  | We employ a test and react strategy that constantly updates our
    product mix while minimizing inventory risk. This strategy is
    supported by our strong relationships with manufacturers which
    allow our merchandising and buying teams to negotiate short
    lead-times, enabling us to test new styles and react quickly to
    fashion trends and keep fast-moving inventory in stock.                                                                                                               

5



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| |   |                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | To complement the introduction of new merchandise, we view the
    majority of our styles as core fashion styles that
    carry over for multiple seasons. Our merchants make subtle
    changes to these styles each season to keep them fresh, while
    reducing our fashion risk exposure.

Increasing the Sale of
Branded Merchandise.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Approximately 17.1% of our net shoe sales for fiscal year 2003
    consisted of branded footwear, up from 9.3% in fiscal year 2000.
    Bakers stores began to sell national branded footwear in fiscal
    year 2000 because we believe that branded merchandise is
    important to our customers, adds credibility to our stores and
    drives customer traffic, increasing our overall sales volume and
    profitability, while reducing our overall exposure to fashion
    risk.
|
| |  | We believe the further penetration of national branded
    merchandise as a percentage of our product mix will be a key
    driver of same store sales growth, as it serves to increase
    customer traffic and customer loyalty in our stores, which we
    believe will also increase the sales of our private label
    merchandise.                                                                                                                                                

Product Development and Merchandising










Product Mix




Private Label.






6



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National Brands.


® ® ® ® ® ®


Accessories.




7



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Merchandise Mix.




|                       |       |             |      |       |      |  |      |       |   |  |      |       |   |  |      |       |  
|---------------------- | ----- | ----------- | ---- | ----- | ---- |  | ---- | ----- | - |  | ---- | ----- | - |  | ---- | ----- | -
|                       |       | Fiscal Year |     
|                       |       |             |     
|Category               |       | 2000        |      |       | 2001 |  |      | 2002  |   |  | 2003 |      
|                       |       |             |      |       |      |  |      |       |   |  |      |      
|Private Label Footwear |       |             | 84.5 | %     |      |  | 79.6 | %     |   |  | 73.0 | %     |   |  | 75.0 | %    
|Branded Footwear       |       |             | 8.7  | %     |      |  | 12.5 | %     |   |  | 17.2 | %     |   |  | 15.5 | %    
|Accessories            |       |             | 6.8  | %     |      |  | 7.9  | %     |   |  | 9.8  | %     |   |  | 9.5  | %    
|                       |       |             |      |       |      |  |      |       |   |  |      |      
|                       | Total |             |      | 100.0 | %    |  |      | 100.0 | % |  |      | 100.0 | % |  |      | 100.0 | %
|                       |       |             |      |       |      |  |      |       |   |  |      |      

Planning and
Allocation.








| |   |                                     
| | - | ------------------------------------
| |  | selling history;                    
|
| |  | importance of branded footwear;     
|
| |  | importance of accessories;          
|
| |  | importance of aggressive fashion;   
|
| |  | the stock capacity of the store; and
|
| |  | sizing trends and color preferences.





8



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Clearance.






Stores


Store Locations and
Environment.








|              |  |        |    | 
|------------- |  | ------ | -- | 
|              |  | No.    |   
|              |  | Stores |   
|              |  |        |   
|Alabama       |  |        | 1  | 
|Arizona       |  |        | 2  | 
|Arkansas      |  |        | 1  | 
|California    |  |        | 31 | 
|Colorado      |  |        | 4  | 
|Connecticut   |  |        | 2  | 
|Delaware      |  |        | 1  | 
|Florida       |  |        | 18 | 
|Georgia       |  |        | 15 | 
|Idaho         |  |        | 1  | 
|Illinois      |  |        | 17 | 
|Indiana       |  |        | 5  | 
|Kansas        |  |        | 2  | 
|Louisiana     |  |        | 5  | 
|Maryland      |  |        | 5  | 
|Massachusetts |  |        | 4  | 
|Michigan      |  |        | 8  | 
|Minnesota     |  |        | 2  | 
|Mississippi   |  |        | 1  | 
|Missouri      |  |        | 7  | 

9



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|               |  |        |     |  
|-------------- |  | ------ | --- | -
|               |  | No.    |    
|               |  | Stores |    
|               |  |        |    
|Nebraska       |  |        | 2   |  
|Nevada         |  |        | 4   |  
|New Jersey     |  |        | 9   |  
|New Mexico     |  |        | 1   |  
|New York       |  |        | 17  |  
|North Carolina |  |        | 2   |  
|Ohio           |  |        | 5   |  
|Oklahoma       |  |        | 2   |  
|Pennsylvania   |  |        | 8   |  
|Rhode Island   |  |        | 1   |  
|South Carolina |  |        | 1   |  
|Texas          |  |        | 17  |  
|Utah           |  |        | 4   |  
|Virginia       |  |        | 4   |  
|Washington     |  |        | 3   |  
|Wisconsin      |  |        | 3   |  
|               |  |        |    
|Total Stores   |  |        | 215 | *
|Total States   |  |        | 36  |  






|  |                                                                         
|- | ------------------------------------------------------------------------
|* | Excludes our Internet site, which is merchandised as a Bakers
    store.



Store Concepts.




Bakers




Wild Pair






10



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|                          |  |                                                                                     |  |                                                                                                                                                                                                                 
|------------------------- |  | ----------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                          |  | Bakers                                                                              |  | Wild Pair                                                                                                                                                                                                       
|                          |  |                                                                                     |  |                                                                                                                                                                                                                 
|Target customer:          |  | Women  ages 12-29                                                                  |  | Men & women  ages 17-24                                                                                                                                                                                        
|Key brands:               |  | Skechers®, Guess Sport®, Steve
    Madden®, bebe®,
    Diesel® and Chinese Laundry® |  | Steve Madden®, Steve Madden
    Mens®, Guess Sport®,
    Skechers®, Candies®, Chinese
    Laundry®, Diesel Womens®,
    Diesel Mens®, Luichiny®,
    Rocket Dog®, Volatile®, Perry
    Ellis Mens® and Puma®
|Fashion content:          |  | Widely-accepted                                                                     |  | Edgy, lifestyle-based                                                                                                                                                                                           
|Number of stores (as of   |  |                                                                                     |  |                                                                                                                                                                                                                 
|January 3, 2004):         |  | 185                                                                                 |  | 30                                                                                                                                                                                                              
|Approximate average size: |  | 2,450 square feet                                                                   |  | 1,800 square feet                                                                                                                                                                                               



| |                 
| | ----------------
| | Store Economics.









| |                  
| | -----------------
| | Store Operations.







11



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Sourcing and Distribution










| |   |                                                 
| | - | ------------------------------------------------
| |  | prototypes of key products prior to manufacture;
|
| |  | samples and materials prior to production; and  
|
| |  | final products prior to shipment.               



Information Systems and Technology




12



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Marketing Through In-Store Advertising






Competition








| |   |                        
| | - | -----------------------
| |  | brand name recognition;
|
| |  | product styling;       
|
| |  | product quality;       
|
| |  | product presentation;  
|
| |  | product pricing;       
|
| |  | store ambiance;        
|
| |  | customer service; and  
|
| |  | convenience.           







| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | department stores (such as Bloomingdales, Dillards,
    Macys and May Department Stores);               
|
| |  | national branded wholesalers (such as Candies, Nine West,
    Steve Madden and Vans);                     
|
| |  | national branded off-price retailers (such as DSW, Rack Room and
    Shoe Carnival);                       
|
| |  | national specialty retailers (such as Finish Line,
    Journeys, Naturalizer, Aldos and Parade of Shoes);
|
| |  | regional chains (such as Cathy Jean and Sheik);                                                            

13



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| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | discount stores (such as Wal-Mart, Target and K-Mart); and, to a
    lesser extent,  
|
| |  | apparel retailers (such as bebe, Charlotte Russe, Express,
    Rampage and Wet Seal).





History of Bakers Shoe Stores




Employees




Intellectual Property and Proprietary Rights


tm ®


Cautionary Statements Regarding Forward-Looking Statements
and Certain Risks




14



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| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our expectations regarding future financial results or
    performance contained in Item 7 (Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations);
|
| |  | our business strategy;                                                                                                                                                                       
|
| |  | the market opportunity for our services and products;                                                                                                                                        
|
| |  | our estimates regarding our capital requirements and needs for
    additional financing;                                                                                                     
|
| |  | any of our other plans, objectives, expectations and intentions
    contained in this Form 10-K that are not historical
    facts; and                                                       
|
| |  | changes in general economic and business conditions and the
    risks referred to below.                                                                                                     



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to identify and respond to changing consumer
    fashion preferences in a timely manner would negatively impact
    our sales, profitability and our image as a fashion resource for
    our customers.





| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A decline in general economic conditions could lead to
    reduced consumer demand for our footwear and accessories and
    could lead to reduced sales and a delay in our expansion
    plans.



15



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| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | We are susceptible to operating losses which would
    adversely affect our business and an investment in our common
    stock.





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to integrate a significant number of new
    stores could strain our resources and cause the performance of
    our existing stores to suffer.







| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our sales and inventory levels fluctuate on a seasonal
    basis, leaving our annual and quarterly operating results
    particularly susceptible to changes in customer shopping
    patterns.







| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Fluctuations in our quarterly results of operations could
    cause the price of our common stock to decline
    substantially.





| |   |                                                          
| | - | ---------------------------------------------------------
| |  | fashion trends;                                          
|
| |  | the effectiveness of our inventory management;           
|
| |  | changes in our merchandise mix;                          
|
| |  | weather conditions;                                      
|
| |  | changes in general economic conditions; and              
|
| |  | actions of competitors, mall anchor stores or co-tenants.

16



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| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Our market share may be adversely impacted at any time by
    a significant number of competitors.





| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | The departure of members of our senior management team
    could adversely affect our business.





| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to maintain good relationships with our
    manufacturers could harm our ability to procure quality
    inventory in a timely manner.





| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on a small number of buying agents for our
    merchandise purchases, and our failure to maintain good
    relationships with any of them could harm our ability to source
    our products.



17



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| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our merchandise is manufactured by foreign manufacturers;
    therefore, the availability and costs of our products may be
    negatively affected by risks associated with international
    trade.





| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | adverse fluctuations in currency exchange rates;                                                                                                                     
|
| |  | changes in import tariffs, duties or quotas;                                                                                                                         
|
| |  | the imposition of taxes or other charges on imports;                                                                                                                 
|
| |  | the imposition of restrictive trade policies or sanctions by the
    United States on one or more of the countries from which we
    obtain footwear and accessories;
|
| |  | expropriation or nationalization;                                                                                                                                    
|
| |  | compliance with and changes in import restrictions and
    regulations;                                                                                              
|
| |  | exposure to different legal standards and the burden of
    complying with a variety of foreign laws and changing foreign
    government policies;                   
|
| |  | international hostilities, war or terrorism;                                                                                                                         
|
| |  | changes in foreign governments, regulations, political unrest,
    work stoppages, shipment disruption or delays; and                                                
|
| |  | changes in economic conditions in countries in which our
    manufacturers and suppliers are located.                                                                









| |                                                                       
| | ----------------------------------------------------------------------
| | Our reliance on manufacturers in China exposes us to
    supply risks.





| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to expand into some territorial and foreign
    jurisdictions under the trademarks Bakers and
    Wild Pair is restricted.



18



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| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our potential inability or failure to renew, register or
    otherwise protect our trademarks could have a negative impact on
    the value of our brand names.





| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on third parties to manage the warehousing and
    distribution aspects of our business. If these third parties do
    not adequately perform these functions, our business would be
    disrupted.





| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to risks associated with leasing our
    stores, especially those stores where we acquired the lease
    through bankruptcy auctions.



19



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| |                                              
| | ---------------------------------------------
| | Our credit facility restricts our activities.









| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | The market price of our common stock may be materially
    adversely affected by market volatility.





| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in comparable store sales or
    operating results;                                                                            
|
| |  | changes in financial estimates by research analysts;                                                                                                            
|
| |  | actual or anticipated changes in the United States economy or
    the retailing environment;                                                                    
|
| |  | changes in the market valuations of other footwear or retail
    companies; and                                                                                 
|
| |  | announcements by us or our competitors of significant
    acquisitions, strategic partnerships, divestitures, joint
    ventures or other strategic initiatives.

20



---



##### 





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | We are controlled by a small group of shareholders whose
    interests may differ from other shareholders.





| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | Our charter documents and Missouri law may inhibit a
    takeover, which may cause a decline in the value of our
    stock.



Executive Officers of the Registrant






|        |            
|------- | -----------
|Item 2. | Properties.







21



---



##### 







|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.





|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders.





| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Amendments to Articles of Incorporation. The shareholders
    approved three amendments to the Companys articles of
    incorporation to facilitate the initial public offering. The
    first set of amendments made several changes, including:



| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increasing the number of shares of our authorized common stock;                                                                                                                                                                                                                                                      
|
| |  | creating a new class of common stock;                                                                                                                                                                                                                                                                                
|
| |  | providing for the automatic conversion and reclassification of
    our capital structure under which each outstanding share of our
    three classes of common stock authorized would automatically
    convert, upon completion of the initial public offering, into
    one share of the new class of common stock;
|
| |  | increasing the size of our board of directors; and                                                                                                                                                                                                                                                                   
|
| |  | creating a class of preferred stock, of which no shares are
    outstanding.                                                                                                                                                                                                                                         



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The second set of amendments removed references to the
    previously authorized classes of common stock and the
    conversion. The first and second sets of amendments were
    implemented by filing with the Missouri Secretary of State.
    Subsequently, we restated our articles of incorporation to take
    into account the effects of the amendments. A copy of our
    restated articles, as currently in effect, has been filed as
    Exhibit 3.1 to this Annual Report on Form 10-K. Under
    our restated articles of incorporation, we have the authority to
    issue 45,000,000 shares of stock, including
    5,000,000 shares of preferred stock, $0.0001 par value
    per share, and 40,000,000 shares of common stock,
    $0.0001 par value per share. The third set of amendments
    would have changed our number of directors back to one and was
    only to be used if the initial public offering did not occur.
    That set of amendments has been abandoned.



| |   |                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Adoption of new incentive plans. The shareholders
    approved and adopted the Bakers Footwear Group, Inc. Cash
    Bonus Plan and the Bakers Footwear Group, Inc. 2003 Stock
    Option Plan.                                                                                                                                                              
|
| |  | Revocation of the Companys S corporation
    status. The shareholders approved and consented to the
    revocation of our S corporation status, which became
    effective at the beginning of fiscal year 2004. The revocation
    of our S corporation status will result in the Company
    being taxed under Subchapter C of the Internal Revenue Code.



22



---



##### 





PART II.




|        |                                                                           
|------- | --------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
    Stockholder Matters.

Market Information and Holders




Dividends




|               |       |              |         |           | 
|-------------- | ----- | ------------ | ------- | --------- | 
|               |       | Distribution |        
|               |       |              |        
|Fiscal 2002:   |       |              |         |          
|First Quarter  |       | $            | 414,190 |          
|Second Quarter |       |              | 950,541 |          
|Third Quarter  |       |              | 455,278 |          
|Fourth Quarter |       |              | 163     |          
|               |       |              |        
|               | Total |              | $       | 1,820,172 | 
|               |       |              |        
|Fiscal 2003:   |       |              |         |          
|First Quarter  |       | $            | 540     |          
|Second Quarter |       |              | 409     |          
|Third Quarter  |       |              | 0       |          
|Fourth Quarter |       |              | 0       |          
|               |       |              |        
|               | Total |              | $       | 949       | 
|               |       |              |        





23



---



##### 





Recent Sales of Unregistered Securities












24



---



##### 







Use of Proceeds










25



---



##### 





Securities Authorized for Issuance Under Equity Compensation
Plans




Purchases of Equity Securities by the Issuer and Affiliated
Purchasers






|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.



|                                                               |  |                   |            |   |              |   |             |            |  |   |             |  |  |            |             |   |  |   |             | 
|-------------------------------------------------------------- |  | ----------------- | ---------- | - | ------------ | - | ----------- | ---------- |  | - | ----------- |  |  | ---------- | ----------- | - |  | - | ----------- | 
|                                                               |  | Fiscal Year Ended |           
|                                                               |  |                   |           
|                                                               |  | December 31,      |            |   | December 30, |   |             | January 5, |  |   | January 4,  |  |  | January 3, |            
|                                                               |  | 1999(1)           |            |   | 2000(2)      |   |             | 2002       |  |   | 2003(5)     |  |  | 2004       |            
|                                                               |  |                   |            |   |              |   |             |            |  |   |             |  |  |            |            
|Net sales                                                      |  | $                 | 87,400,591 |   |              | $ | 140,709,517 |            |  | $ | 140,841,929 |  |  | $          | 151,147,810 |   |  | $ | 148,223,553 | 
|Gross profit                                                   |  |                   | 21,448,475 |   |              |   | 38,433,775  |            |  |   | 42,384,857  |  |  |            | 44,794,494  |   |  |   | 44,826,960  | 
|Income (loss) before cumulative effect of change in accounting |  |                   | (3,954,293 | ) |              |   | 1,583,447   |            |  |   | 4,897,376   |  |  |            | (714,797    | ) |  |   | 1,629,906   | 
|Cumulative effect of change in accounting(3)                   |  |                   |           |   |              |   |            |            |  |   |            |  |  |            | 2,774,899   |   |  |   |            | 
|                                                               |  |                   |            |   |              |   |             |            |  |   |             |  |  |            |            
|Net income (loss)(4)                                           |  | $                 | (3,954,293 | ) |              | $ | 1,583,447   |            |  | $ | 4,897,376   |  |  | $          | 2,060,102   |   |  | $ | 1,629,906   | 
|                                                               |  |                   |            |   |              |   |             |            |  |   |             |  |  |            |            

26



---



##### 



|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |            |           |      |   |            |           |      | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------------- | ---------- | ---------- | ------------ | - | ---------- | ---------- | ---- | - | ---------- | --------- | ---- | ---------- | ---------- | --------- | ---- | - | ---------- | --------- | ---- | 
|                                                                                              |                                                                                     | Fiscal Year Ended |           
|                                                                                              |                                                                                     |                   |           
|                                                                                              |                                                                                     | December 31,      |            |            | December 30, |   |            | January 5, |      |   | January 4, |           |      | January 3, |           
|                                                                                              |                                                                                     | 1999(1)           |            |            | 2000(2)      |   |            | 2002       |      |   | 2003(5)    |           |      | 2004       |           
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           
|Net income (loss) per common share                                                            |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |            |           |      |   |            |          
|                                                                                              | Basic                                                                               |                   | $          | (3.14      | )            |   | $          | 1.09       |      |   | $          | 3.27      |      |            | $          | 1.36      |      |   | $          | 0.90      |     
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           
|                                                                                              | Diluted                                                                             |                   | $          | (3.14      | )            |   | $          | 0.68       |      |   | $          | 2.14      |      |            | $          | 0.96      |      |   | $          | 0.77      |     
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           
|Total assets                                                                                  |                                                                                     | $                 | 19,438,431 |            |              | $ | 19,135,236 |            |      | $ | 22,649,476 |           |      | $          | 30,022,982 |           |      | $ | 29,941,167 |          
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           
|Long-term debt, capital lease obligations and redeemable
    securities, less current portion |                                                                                     | $                 | 3,236,388  |            |              | $ | 3,286,974  |            |      | $ | 4,518,298  |           |      | $          | 9,343,154  |           |      | $ | 7,695,365  |          
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           
|Unaudited pro forma information(4):                                                           |                                                                                     |                   | (Unaudited | )          |              |   | (Unaudited | )          |      |   | (Unaudited | )         |      |            | (Unaudited | )         |      |   | (Unaudited | )        
|                                                                                              | Income (loss) before cumulative effect of change in accounting
    and income taxes |                   | $          | (4,081,025 | )            |   | $          | 1,344,767  |      |   | $          | 4,808,657 |      |            | $          | (878,442  | )    |   | $          | 1,697,725 |     
|                                                                                              | Provision for (benefit from) income taxes                                           |                   |            | (1,854,573 | )            |   |            | 261,258    |      |   |            | 1,581,390 |      |            |            | (302,363  | )    |   |            | 657,758   |     
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           
|                                                                                              | Income (loss) before cumulative effect of change in accounting                      |                   |            | (2,226,453 | )            |   |            | 1,083,509  |      |   |            | 3,227,267 |      |            |            | (576,079  | )    |   |            | 1,039,967 |     
|                                                                                              | Cumulative effect of change in accounting(3)                                        |                   |            |           |              |   |            |           |      |   |            |          |      |            |            | 1,763,934 |      |   |            |          |     
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           
|                                                                                              | Net income (loss)                                                                   |                   | $          | (2,226,453 | )            |   | $          | 1,083,509  |      |   | $          | 3,227,267 |      |            | $          | 1,187,855 |      |   | $          | 1,039,967 |     
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           
|                                                                                              | Net income (loss) per common share                                                  |                   |            |            |              |   |            |            |      |   |            |           |      |            |            |           |      |   |            |           |     
|                                                                                              |                                                                                     | Basic             |            | $          | (1.78        | ) |            | $          | 0.73 |   |            | $         | 2.10 |            |            | $         | 0.75 |   |            | $         | 0.49 | 
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           
|                                                                                              |                                                                                     | Diluted           |            | $          | (1.78        | ) |            | $          | 0.47 |   |            | $         | 1.41 |            |            | $         | 0.54 |   |            | $         | 0.47 | 
|                                                                                              |                                                                                     |                   |            |            |              |   |            |            |      |   |            |           |      |            |           






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On June 22, 1999, we acquired the assets of 198 Bakers
    stores for approximately $9.0 million. Consequently, the
    results of operations for those stores are included in our
    financial statements since the acquisition date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(2) | Effective December 30, 2000, we changed our fiscal year
    from the calendar year ending December 31 to a
    52/53 week period. The fiscal year ended January 5,
    2002 is a 53-week period. For more information regarding our
    fiscal year, please see Item 7. Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Fiscal Year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | Represents the cumulative effect of adopting
    SFAS No. 142, Goodwill and Other Intangible
    Assets, and recognizing as income from the unamortized
    deferred credit related to the excess of fair value over cost
    arising from the acquisition of Bakers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(4) | Through January 3, 2004, we elected S corporation
    status for Federal and state income tax purposes. Accordingly,
    no provision has been made for Federal or certain state income
    taxes. Pro forma net income has been computed as if we had been
    fully subject to Federal, state and city taxes. Effective
    January 4, 2004, we terminated our S election and will be
    taxed as a C corporation. For a reconciliation of our
    historical income (loss) before cumulative effect of change in
    accounting to pro forma income (loss) before cumulative effect
    of change in accounting and income taxes, please see
    Note 13 in the financial statements. As an
    S corporation, we paid distributions to our shareholders in
    amounts sufficient to allow them to pay income taxes related to
    an allocable share of our taxable income and did not pay
    traditional

27



---



##### 



|    |                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | cash dividends per share. Such distributions are not comparable
    to dividends that would be paid by a C corporation. The
    Company currently has no plans to pay dividends. See the
    information under the caption Item 5. Market for
    Registrants Common Equity and Related Stockholder
    Matters  Dividends which is incorporated herein
    by reference.
|   
|(5) | Reflects approximately $1.7 million in initial public
    offering costs charged in fiscal year 2002 as a result of a
    delay in the initial public offering process. In the first
    quarter of fiscal year 2002, we completed the acquisition of 33
    former Sam & Libby store locations for approximately
    $1.8 million in cash.                                  



|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.

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. Factors that might
cause such a difference include, but are not limited to, those
discussed in Item 1. Business  Cautionary
Statements Regarding Forward-Looking Statements and
elsewhere in this annual report. The following section is
qualified in its entirety by this more detailed information and
our Financial Statements and the related Notes thereto, included
elsewhere in this annual report on Form 10-K/A.


Restatement of Financial Statements








Overview








28



---



##### 



Critical Accounting Policies






Merchandise
inventories




Store closing and impairment
charges


Accounting for the Disposal of
Long-Lived Assets


S Corporation Income Tax Status




Fiscal Year




29



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##### 



Results of Operations




|                                                        |  |                   |       |   |            |  |       |            |  |  |       |  
|------------------------------------------------------- |  | ----------------- | ----- | - | ---------- |  | ----- | ---------- |  |  | ----- | -
|                                                        |  | Fiscal Year Ended |      
|                                                        |  |                   |      
|                                                        |  | January 5,        |       |   | January 4, |  |       | January 3, | 
|                                                        |  | 2002              |       |   | 2003       |  |       | 2004       | 
|                                                        |  |                   |       |   |            |  |       |            | 
|Net sales                                               |  |                   | 100.0 | % |            |  | 100.0 | %          |  |  | 100.0 | %
|Cost of merchandise sold, occupancy and buying expense  |  |                   | 69.9  |   |            |  | 70.4  |            |  |  | 69.8  |  
|                                                        |  |                   |       |   |            |  |       |            | 
|Gross profit                                            |  |                   | 30.1  |   |            |  | 29.6  |            |  |  | 30.2  |  
|Selling expense                                         |  |                   | 19.3  |   |            |  | 20.4  |            |  |  | 20.0  |  
|General and administrative expense                      |  |                   | 7.1   |   |            |  | 7.4   |            |  |  | 7.7   |  
|Loss on disposal of property and equipment              |  |                   |      |   |            |  | 0.1   |            |  |  | 0.1   |  
|Impairment and disposal of long-lived assets            |  |                   |      |   |            |  | 0.1   |            |  |  | 0.1   |  
|Write off of deferred offering costs                    |  |                   |      |   |            |  | 1.1   |            |  |  |      |  
|Amortization of excess of acquired net assets over cost |  |                   | (0.8  | ) |            |  |      |            |  |  |      |  
|                                                        |  |                   |       |   |            |  |       |            | 
|Operating income (loss)                                 |  |                   | 4.5   |   |            |  | 0.5   |            |  |  | 2.3   |  
|Other income (expense)                                  |  |                   |      |   |            |  |      |            |  |  | (0.1  | )
|Interest expense                                        |  |                   | (0.8  | ) |            |  | (1.1  | )          |  |  | (1.1  | )
|State income tax (expense) benefit                      |  |                   | (0.2  | ) |            |  | 0.1   |            |  |  |      |  
|Cumulative effect of change in accounting               |  |                   |      |   |            |  | 1.8   |            |  |  |      |  
|                                                        |  |                   |       |   |            |  |       |            | 
|Net income                                              |  |                   | 3.5   | % |            |  | 1.3   | %          |  |  | 1.1   | %
|                                                        |  |                   |       |   |            |  |       |            | 



|                                        |  |                   |     |   |            |  |     |            |  |  |     |  
|--------------------------------------- |  | ----------------- | --- | - | ---------- |  | --- | ---------- |  |  | --- | -
|                                        |  | Fiscal Year Ended |    
|                                        |  |                   |    
|                                        |  | January 5,        |     |   | January 4, |  |     | January 3, | 
|                                        |  | 2002              |     |   | 2003       |  |     | 2004       | 
|                                        |  |                   |     |   |            |  |     |            | 
|Number of stores at beginning of period |  |                   | 209 |   |            |  | 202 |            |  |  | 233 |  
|Stores opened or acquired during period |  |                   | 14  |   |            |  | 41  |            |  |  | 3   |  
|Stores closed during period             |  |                   | (21 | ) |            |  | (10 | )          |  |  | (21 | )
|                                        |  |                   |     |   |            |  |     |            | 
|Number of stores at end of period       |  |                   | 202 |   |            |  | 233 |            |  |  | 215 |  
|                                        |  |                   |     |   |            |  |     |            | 

Fiscal Year Ended
January 3, 2004 Compared to Fiscal Year Ended
January 4, 2003


Net sales.


Gross profit.


30



---



##### 





Selling expense.


General and administrative expense.


Income (loss) before cumulative effect of change in
accounting.


Net income.


Fiscal Year Ended
January 4, 2003 Compared to Fiscal Year Ended
January 5, 2002


Net sales.




Gross profit.


Selling expense.


General and administrative expense.


Write-off of expenses related to initial public offering.


Interest expense.


31



---



##### 





Cumulative effect of change in accounting.


Net income.


Seasonality and Quarterly Fluctuations




|                        |  |                                   |            |  |        |   |            |       |  |   |            |   |  |   |            | 
|----------------------- |  | --------------------------------- | ---------- |  | ------ | - | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | 
|                        |  | Fiscal Year Ended January 5, 2002 |           
|                        |  |                                   |           
|                        |  | First                             |            |  | Second |   |            | Third |  |   | Fourth     |  
|                        |  |                                   |            |  |        |   |            |       |  |   |            |  
|Net sales               |  | $                                 | 33,164,841 |  |        | $ | 37,528,409 |       |  | $ | 31,940,160 |   |  | $ | 38,208,519 | 
|Gross profit            |  |                                   | 8,947,561  |  |        |   | 12,009,940 |       |  |   | 8,671,798  |   |  |   | 12,755,558 | 
|Operating expenses      |  |                                   | 8,881,737  |  |        |   | 8,957,212  |       |  |   | 8,686,290  |   |  |   | 9,487,371  | 
|Operating income (loss) |  |                                   | 65,824     |  |        |   | 3,052,728  |       |  |   | (14,492    | ) |  |   | 3,268,187  | 

|                        |  |                                   |            |  |        |   |            |       |  |   |            |   |  |   |            | 
|----------------------- |  | --------------------------------- | ---------- |  | ------ | - | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | 
|                        |  | Fiscal Year Ended January 4, 2003 |           
|                        |  |                                   |           
|                        |  | First                             |            |  | Second |   |            | Third |  |   | Fourth     |  
|                        |  |                                   |            |  |        |   |            |       |  |   |            |  
|Net sales               |  | $                                 | 32,059,325 |  |        | $ | 39,405,673 |       |  | $ | 36,259,634 |   |  | $ | 43,423,178 | 
|Gross profit            |  |                                   | 10,041,763 |  |        |   | 11,719,538 |       |  |   | 8,396,851  |   |  |   | 14,636,342 | 
|Operating expenses      |  |                                   | 9,310,187  |  |        |   | 10,898,445 |       |  |   | 11,070,057 |   |  |   | 12,661,145 | 
|Operating income (loss) |  |                                   | 731,576    |  |        |   | 821,093    |       |  |   | (2,673,206 | ) |  |   | 1,975,197  | 

|                        |  |                                   |            |   |        |   |            |       |  |   |            |   |  |   |            | 
|----------------------- |  | --------------------------------- | ---------- | - | ------ | - | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | 
|                        |  | Fiscal Year Ended January 3, 2004 |           
|                        |  |                                   |           
|                        |  | First                             |            |   | Second |   |            | Third |  |   | Fourth     |  
|                        |  |                                   |            |   |        |   |            |       |  |   |            |  
|Net sales               |  | $                                 | 31,909,958 |   |        | $ | 38,310,685 |       |  | $ | 34,274,081 |   |  | $ | 43,728,829 | 
|Gross profit            |  |                                   | 7,608,275  |   |        |   | 11,442,752 |       |  |   | 9,278,577  |   |  |   | 16,497,356 | 
|Operating expenses      |  |                                   | 10,472,365 |   |        |   | 10,261,703 |       |  |   | 9,850,830  |   |  |   | 10,784,301 | 
|Operating income (loss) |  |                                   | (2,864,090 | ) |        |   | 1,181,049  |       |  |   | (572,253   | ) |  |   | 5,713,055  | 







Liquidity and Capital Resources




32



---



##### 







Operating activities






Investing activities








Financing activities




33



---



##### 

















34



---



##### 





Initial Public
Offering








35



---



##### 





Off-Balance Sheet Arrangements




Contractual Obligations




|                               |  |                        |             |           |        |   |            |           |           |   |            |  |  |         |            |  |  |   |            | 
|------------------------------ |  | ---------------------- | ----------- | --------- | ------ | - | ---------- | --------- | --------- | - | ---------- |  |  | ------- | ---------- |  |  | - | ---------- | 
|                               |  | Payments Due in Period |            
|                               |  |                        |            
|                               |  |                        |             | Less Than |        |   |            |           | More Than |  
|Contractual Obligations        |  | Total                  |             |           | 1 Year |   |            | 1-3 Years |           |   | 3-5 Years  |  |  | 5 Years |           
|                               |  |                        |             |           |        |   |            |           |           |   |            |  |  |         |           
|Long-term debt obligations(1)  |  | $                      | 8,301,135   |           |        | $ | 1,961,000  |           |           | $ | 1,305,385  |  |  | $       | 5,034,750  |  |  | $ |           | 
|Capital lease obligations(2)   |  |                        | 3,200,932   |           |        |   | 1,398,052  |           |           |   | 1,471,558  |  |  |         | 331,322    |  |  |   |           | 
|Operating lease obligations(3) |  |                        | 91,604,694  |           |        |   | 15,804,333 |           |           |   | 26,630,072 |  |  |         | 19,619,058 |  |  |   | 29,551,231 | 
|Purchase obligations(4)        |  |                        | 24,382,978  |           |        |   | 24,108,330 |           |           |   | 197,584    |  |  |         | 67,548     |  |  |   | 9,516      | 
|Other long-term liabilities(5) |  |                        | 2,086,116   |           |        |   | 271,800    |           |           |   | 1,087,200  |  |  |         | 727,116    |  |  |   |           | 
|Total                          |  | $                      | 129,575,855 |           |        | $ | 43,543,515 |           |           | $ | 30,691,799 |  |  | $       | 25,779,794 |  |  | $ | 29,560,747 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes payment obligations relating to our subordinated debt,
    our subordinated convertible debentures, and our stock purchase
    warrants. Subsequent to January 4, 2003, the subordinated
    convertible debentures converted into shares of our common stock
    upon our IPO and we repaid the subordinated debt and redeemed
    the stock purchase warrants with the proceeds from the IPO.
|   
|(2) | Includes payment obligations relating to our point of sale
    hardware and software leases.                                                                                                                                                                                                                                                                                                            
|   
|(3) | Includes minimum payment obligations relating to our store
    leases.                                                                                                                                                                                                                                                                                                                                  
|   
|(4) | Includes merchandise on order and payment obligations relating
    to miscellaneous service contracts.                                                                                                                                                                                                                                                                                                  
|   
|(5) | Includes our obligation to redeem certain shares of stock. This
    obligation expired upon our IPO.                                                                                                                                                                                                                                                                                                    

Recent Accounting Pronouncements


Rescission of FASB
Statements No. 4, 44 and 62, Amendment of FASB Statement
No. 13, and Technical Corrections.


Consolidation of Variable Interest
Entities Consolidated Financial
Statements Effective Date
of FASB Interpretation No. 46, Consolidation of Variable
Interest Entities


36



---



##### 





|        |                                                                
|------- | ---------------------------------------------------------------
|Item 7A | Quantitative and Qualitative Disclosures About Market
    Risk.



Impact of Inflation






|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary Data.





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure.





|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.











37



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##### 







PART III.




|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant.



Executive Officers of the Registrant




|                         |  |     |    |  |          |                                                                               
|------------------------ |  | --- | -- |  | -------- | ------------------------------------------------------------------------------
|Name                     |  | Age |    |  | Position
|                         |  |     |    |  |         
|Peter A. Edison          |  |     | 48 |  |          | Chairman of the Board and Chief Executive Officer                             
|Michele A. Bergerac      |  |     | 48 |  |          | President and Director                                                        
|Mark D. Ianni            |  |     | 43 |  |          | Executive Vice President  General Merchandise Manager                        
|Lawrence L. Spanley, Jr. |  |     | 57 |  |          | Chief Financial Officer, Vice President  Finance,
    Treasurer and Secretary
|Stanley K. Tusman        |  |     | 57 |  |          | Executive Vice President  Inventory and Information
    Management           
|Joseph R. Vander Pluym   |  |     | 52 |  |          | Executive Vice President  Stores                                             

Peter A. Edison


Michele A. Bergerac


Mark D. Ianni


38



---



##### 





Lawrence L. Spanley, Jr.


Stanley K. Tusman


Joseph R. Vander Pluym






Section 16(a) Beneficial Ownership Reporting
Compliance




Code of Ethics






|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.



39



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##### 





|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management.



Equity Compensation Plan Information






Equity Compensation Plan Table


|                                                          |       |                  |         |         |              |   |      |                       |  |  |         |         | 
|--------------------------------------------------------- | ----- | ---------------- | ------- | ------- | ------------ | - | ---- | --------------------- |  |  | ------- | ------- | 
|                                                          |       | Number of        |         |         | Weighted-    |   |      | Number of Securities  | 
|                                                          |       | Securities to be |         |         | Average      |   |      | Remaining Available   | 
|                                                          |       | Issued Upon      |         |         | Exercise     |   |      | for Future Issuance   | 
|                                                          |       | Exercise of      |         |         | Price of     |   |      | Under Equity          | 
|                                                          |       | Outstanding      |         |         | Outstanding  |   |      | Compensation Plans    | 
|                                                          |       | Options,         |         |         | Options,     |   |      | (Excluding Securities | 
|                                                          |       | Warrants         |         |         | Warrants and |   |      | to be Issued Upon     | 
|Plan Category                                             |       | and Rights       |         |         | Rights       |   |      | Exercise)             | 
|                                                          |       |                  |         |         |              |   |      |                       | 
|Equity compensation plans approved by security holders(1) |       |                  | 573,492 |         |              | $ | 4.13 |                       |  |  | 295,500 |        
|                                                          |       |                  |         |         |              |   |      |                       | 
|                                                          | Total |                  |         | 573,492 |              |   | $    | 4.13                  |  |  |         | 295,500 | 
|                                                          |       |                  |         |         |              |   |      |                       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Prior to our initial public offering, we had a predecessor stock
    option plan in effect which allowed us to grant nonqualified
    stock options. Under the 2003 Plan, which was approved by our
    shareholders as of January 3, 2004, all of the options
    granted under the predecessor stock option plan are deemed to be
    covered by the 2003 Plan. All of the option holders under the
    predecessor plan also agreed to amend their option award
    agreements to have their options governed by the 2003 Plan on
    generally the same terms and conditions. At March 1, 2004,
    under the 2003 Plan, there was a total of 268,992 shares of
    common stock to be issued upon exercise of outstanding and fully
    exercisable options at a weighted average exercise price of
    $0.01 per share. On February 10, 2004, after the
    consummation of our initial public offering, we granted
    nonqualified stock options to purchase 304,500 shares of
    our common stock to certain of our employees and directors at an
    exercise price of $7.75 per share, the initial public
    offering price, pursuant to the 2003 Plan. The options vest in
    five equal annual installments beginning on the first
    anniversary of the date of grant. As a result, as of
    March 1, 2004, there were an additional 304,500 shares
    of common stock to be issued upon exercise of outstanding
    options granted having a weighted average exercise price of
    $7.75 per share. As of the same date, 295,500 shares
    of common stock remain available for future issuance (excluding
    shares to be issued upon exercise of outstanding options).





|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions.



40



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##### 





|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accounting Fees and Services.



PART IV




|         |                                                                      
|-------- | ---------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules, and Reports on
    Form 8-K.





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Financial Statements: The financial statements
    commencing on page F-1. The Index to Financial Statements
    on page F-1 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                            
|
| | 2. Financial Statement Schedules: All information schedules
    have been omitted as the required information is inapplicable,
    not required, or other information is included in the financial
    statement notes.                                                                                                                                                                                                                                                                         
|
| | 3. Exhibits: The list of exhibits in the Exhibit Index
    to this Report is incorporated herein by reference. The
    following exhibits are management contracts and compensatory
    plans or arrangements required to be filed as exhibits to this
    Form 10-K: Exhibits 10.1, 10.2, 10.11, 10.15, 10.16,
    10.20 through 10.29 and 10.33 through 10.38. The exhibits were
    filed with the SEC but were not included in the printed version
    of the Annual Report to Shareholders.



41



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##### 



SIGNATURES






| |                                
| | -------------------------------
| | Bakers Footwear
    Group, Inc.



| |    |                    
| | -- | -------------------
| | By | /s/ Peter A. Edison

| |                                                                                    
| | -----------------------------------------------------------------------------------
| |                                                                                    
| | Peter A. Edison                                                                    
| | Chairman of the Board and Chief Executive Officer (Principal
    Executive Officer)



|                                |  |                                                                                                                                                   |  |                |  | 
|------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                       |  | Title                                                                                                                                             |  | Date          
|                                |  |                                                                                                                                                   |  |               
|*(Peter
    A. Edison)          |  | Chairman of the Board and Chief Executive Officer, Director
    (Principal Executive Officer)                                                     |  | March 21, 2005
|                               
|*(Lawrence
    L. Spanley, Jr.) |  | Chief Financial Officer, Vice President  Finance,
    Treasurer and Secretary (Principal Financial Officer and
    Principal Accounting Officer) |  | March 21, 2005
|                               
|*(Andrew
    N. Baur)           |  | Director                                                                                                                                          |  | March 21, 2005
|                               
|*(Michele
    Bergerac)         |  | Director                                                                                                                                          |  | March 21, 2005
|                               
|*(Timothy
    F. Finley)        |  | Director                                                                                                                                          |  | March 21, 2005
|                               
|*(Harry
    E. Rich)            |  | Director                                                                                                                                          |  | March 21, 2005
|                               
|*(Scott
    C. Schnuck)         |  | Director                                                                                                                                          |  | March 21, 2005






|  |                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Peter A. Edison, by signing his name hereto, does sign this
    document on behalf of the above noted individuals, pursuant to
    powers of attorney duly executed by such individuals which have
    been filed as an Exhibit to this Report.



| |                    
| | -------------------
| | /s/ Peter A. Edison
| |                    
| | Peter A. Edison    
| | Attorney-in-Fact   

42



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##### 



EXHIBIT INDEX


|        |       |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ----- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |            
|Number  |       |  | Description
|        |       |  |            
|        | 3.1   |  |             | Restated Articles of Incorporation of the Company.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 3.2   |  |             | Restated Bylaws of the Company.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4.1   |  |             | Debenture Purchase Agreement dated April 4, 2002 by and
    among the Company and the persons on the attached signature
    pages (incorporated by reference to Exhibit 4.1 of the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed April 16, 2002).                                                                                                                                                                                                                                                                              
|        | 4.1.1 |  |             | Convertible Debenture Exchange Agreement dated January 2,
    2004 by and among the Company, Special Situations Private Equity
    Fund, L.P., Special Situations Cayman Fund, L.P., Special
    Situations Fund III, L.P., Julian Edison, The Crown
    Advisors, LLC, Crown Investment Partners, L.P. and SWB
    Holdings, Inc. (incorporated by reference to
    Exhibit 4.1.1 of Amendment No. 3 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                                                   
|        | 4.1.2 |  |             | Form of Subordinated Convertible Debenture dated January 2004
    (included as Exhibit A to Exhibit 4.1.1).                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 4.2.1 |  |             | Second Registration Rights Agreement dated January 2, 2004
    by and among the Company, Special Situations Fund III,
    L.P., Special Situations Cayman Fund, L.P., Special Situations
    Private Equity Fund, L.P., The Crown Advisors LLC, Crown
    Investment Partners, LP, SWB Holdings, Inc. and Julian
    Edison (incorporated by reference to Exhibit 4.2.1 of
    Amendment No. 3 to the Companys Registration
    Statement on Form S-1 (File No. 333-86332), filed
    January 8, 2004).                                                          
|        | 4.2.2 |  |             | Letter to Ryan Beck & Co., Inc. and BB&T
    Capital Markets, as representatives of the underwriters,
    relating to restrictions on transferability of common stock
    underlying convertible debentures, executed by all holders of
    subordinated convertible debentures.(1)                                                                                                                                                                                                                                                                               
|        | 4.3   |  |             | Representatives Warrant Agreement, dated February 10,
    2004 by and among the Company, Ryan Beck &
    Co., Inc. and BB&T Capital Markets, a Division of
    Scott & Stringfellow, Inc.(1)                                                                                                                                                                                                                                                                                                                                                                     
|        | 4.4   |  |             | Amended and Restated Intercreditor and Subordination Agreement
    dated January 2, 2004 by and among Fleet Retail Finance
    Inc., Special Situations Private Equity Fund, L.P., Special
    Situations Cayman Fund, L.P., Special Situations Fund III,
    L.P., Julian Edison, The Crown Advisors, LLC, Crown Investment
    Partners, L.P., SWB Holdings, Inc. and the Company
    (incorporated by reference to Exhibit 4.4 of Amendment
    No. 3 to the Companys Registration Statement on
    Form S-1 (File No. 333-86332), filed January 8,
    2004).
|        | 4.5   |  |             | Letter to Ryan Beck & Co., Inc. and BB&T
    Capital Markets, as representatives of the underwriters,
    relating to restrictions on transferability of common stock,
    executed by all directors, officers and shareholders prior to
    the initial public offering.(1)                                                                                                                                                                                                                                                                                      
|        | 4.6   |  |             | Form of common stock certificate.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4.7   |  |             | Warrants issued by the Company to representatives of the
    underwriters, or their designees.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.1  |  |             | Bakers Footwear Group, Inc. 2003 Stock Option Plan
    (incorporated by reference to Exhibit 10.1 of Amendment
    No. 3 to the Companys Registration Statement on
    Form S-1 (File No. 333-86332), filed January 8,
    2004).                                                                                                                                                                                                                                                                                                                                
|        | 10.2  |  |             | Bakers Footwear Group, Inc. Cash Bonus Plan (incorporated
    by reference to Exhibit 10.2 of Amendment No. 3 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                                                                                                                                                                                                                                                                                                                                           
|        | 10.3  |  |             | Promissory Note in favor of Sanford Weiss, individually and as
    agent for the Class B Shareholders dated October 31,
    1997 in the principal amount of $1,000,000 (incorporated by
    reference to Exhibit 10.3 of Amendment No. 1 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed June 4, 2002).                                                                                                                                                                                                                   
|        | 10.4  |  |             | Security Agreement in favor of Sanford Weiss, as agent for the
    Class B Shareholders dated October 31, 1997 (included
    as Schedule 4 to Exhibit 10.3).                                                                                                                                                                                                                                                                                                                                                                                                      

43



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##### 



|        |        |  |             |                                                                                                                                                                                                                                                                                                                                           
|------- | ------ |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |            
|Number  |        |  | Description
|        |        |  |            
|        | 10.5   |  |             | Limited Personal Guaranty given by Peter A. Edison in favor of
    Sanford Weiss, as agent for the Class B Shareholders dated
    October 31, 1997 (included as Schedule 5 to
    Exhibit 10.3).                                                                                                                                          
|        | 10.6   |  |             | Promissory Note in favor of Southwest Bank of St. Louis
    dated June 22, 1999 in the principal amount of $95,000
    (incorporated by reference to Exhibit 10.6 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed April 16, 2002).                                                                
|        | 10.7   |  |             | Promissory Note in favor of Mississippi Valley Capital Company
    dated June 22, 1999 in the principal amount of $500,000
    (incorporated by reference to Exhibit 10.7 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed April 16, 2002).                                                        
|        | 10.7.1 |  |             | Amended and Restated Subordinated Note in favor of Mississippi
    Valley Capital, LLC dated as of January 31, 2003 in the
    principal amount of $500,000 (incorporated by reference to
    Exhibit 10.7.1 of Amendment No. 2 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed December 4, 2003).
|        | 10.8   |  |             | Warrant in favor of Mississippi Valley Capital Corporation to
    purchase shares of Class A Common Stock (incorporated by
    reference to Exhibit 10.8 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed April 16, 2002).                                                                         
|        | 10.8.1 |  |             | Amended and Restated Warrant in favor of Mississippi Valley
    Capital to purchase shares of Class A Common Stock
    (incorporated by reference to Exhibit 10.8.1 of Amendment
    No. 2 to the Companys Registration Statement on
    Form S-1 (File No. 333-86332), filed December 4,
    2003).                                     
|        | 10.9   |  |             | Concurrent Use Agreement dated June 23, 1999 between the
    Company and Novus, Inc. (incorporated by reference to
    Exhibit 10.9 to the Companys Registration Statement
    on Form S-1 (File No. 333-86332), filed April 16,
    2002).                                                                                              
|        | 10.10  |  |             | Assignment of Rights dated June 23, 1999 between the
    Company and Edison Brothers Stores, Inc. (incorporated by
    reference to Exhibit 10.10 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed April 16, 2002).                                                                                
|        | 10.11  |  |             | Consultant Agreement dated May 18, 2001 by and between the
    Company and Mark H. Brown & Associates, LLC
    (incorporated by reference to Exhibit 10.11 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed April 16, 2002).                                                                       
|        | 10.12  |  |             | Warehousing Service Agreement dated April 28, 2000 between
    Brown Shoe Company, Inc. and the Company (incorporated by
    reference to Exhibit 10.12 of Amendment No. 1 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed June 4, 2002).                                                         
|        | 10.13  |  |             | Letter of Understanding Between Transmodal Associates, Inc.
    and Cargotrans Transitarios Internacionais (incorporated by
    reference to Exhibit 10.13 of Amendment No. 1 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed June 4, 2002).                                                      
|        | 10.14  |  |             | Motor Transportation Contract dated October 25, 1999
    between Combined Express, Inc. and the Company
    (incorporated by reference to Exhibit 10.14 of Amendment
    No. 1 to Registration Statement on Form S-1 (File
    No. 333-86332), filed June 4, 2002).                                                                       
|        | 10.15  |  |             | Employment Agreement dated January 12, 2004 by and between
    the Company and Peter Edison (incorporated by reference to
    Exhibit 10.15 of Amendment No. 4 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed January 20, 2004).                                                                 
|        | 10.16  |  |             | Employment Agreement dated April 1, 2002 by and between the
    Company and Michele Bergerac (incorporated by reference to
    Exhibit 10.16 of Amendment No. 4 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed January 20, 2004).                                                                
|        | 10.17  |  |             | Amended and Restated Loan and Security Agreement dated
    June 11, 2002 by and between Fleet Retail
    Finance, Inc. and the Company (incorporated by reference to
    Exhibit 10.17 of Amendment No. 2 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed December 4, 2003).                      

44



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##### 



|        |         |  |             |                                                                                                                                                                                                                                                                                                                                                     
|------- | ------- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |            
|Number  |         |  | Description
|        |         |  |            
|        | 10.17.1 |  |             | First Amendment to Amended and Restated Loan and Security
    Agreement dated February 20, 2003 by and between Fleet
    Retail Finance, Inc. and the Company (incorporated by
    reference to Exhibit 10.17.1 of Amendment No. 2 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed December 4, 2003).       
|        | 10.17.2 |  |             | Amended & Restated Intercreditor Subordination
    Agreement among the Company, Mississippi Valley Capital, LLC and
    Fleet Retail Finance Inc. dated April 8, 2003 (included in
    Exhibit 10.17.1).                                                                                                                                            
|        | 10.17.3 |  |             | Security Agreement in favor of Mississippi Valley Capital, LLC
    dated January 31, 2003, (included in Exhibit 10.17.1).                                                                                                                                                                                                                           
|        | 10.17.4 |  |             | Second Amendment to Amended and Restated Loan and Security
    Agreement dated as of November 26, 2003 by and between
    Fleet Retail Finance, Inc. and the Company (incorporated by
    reference to Exhibit 10.17.4 of Amendment No. 2 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed December 4, 2003).
|        | 10.17.5 |  |             | Third Amendment and Waiver and Consent Agreement dated
    January 2, 2004 by and between Fleet Retail
    Finance, Inc. and the Company (incorporated by reference to
    Exhibit 10.17.5 of Amendment No. 3 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                             
|        | 10.17.6 |  |             | Limited Guaranty of Collection by Peter Edison in favor of Fleet
    Retail Finance, Inc. dated as of January 18, 2000
    (incorporated by reference to Exhibit 10.17.6 of Amendment
    No. 5 to the Companys Registration Statement on
    Form S-1 (File No. 333-86332), filed January 30,
    2004).                                          
|        | 10.17.7 |  |             | Fourth Amendment and Waiver and Consent Agreement dated
    January 28, 2004 by and between Fleet Retail
    Finance, Inc. and the Company (incorporated by reference to
    Exhibit 10.17.7 of Amendment No. 5 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 30, 2004).                          
|        | 10.17.8 |  |             | Form of Revolving Credit Note in favor of Fleet Retail
    Finance, Inc. dated as of January 18, 2000 (included
    in Exhibit 10.17).                                                                                                                                                                                                              
|        | 10.17.9 |  |             | Confirmation and Release of Guaranty Agreement by Peter Edison
    dated as of June 11, 2002 (included in Exhibit 10.17).                                                                                                                                                                                                                           
|        | 10.18   |  |             | Tax Indemnification Agreement among the Company and its
    shareholders dated January 3, 2004.(1)                                                                                                                                                                                                                                                  
|        | 10.19   |  |             | Software License Agreement dated June 3, 1999 by and
    between JDA Software, Inc. and the Company (incorporated by
    reference to Exhibit 10.19 of Amendment No. 4 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 20, 2004).                                                                   
|        | 10.20   |  |             | Employment Agreement dated September 16, 2002 by and
    between the Company and Stanley K. Tusman (incorporated by
    reference to Exhibit 10.20 of Amendment No. 4 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 20, 2004).                                                                    
|        | 10.21   |  |             | Employment Agreement dated December 12, 2003 by and between
    the Company and Joe Vander Pluym (incorporated by reference to
    Exhibit 10.21 of Amendment No. 4 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed January 20, 2004).                                                                      
|        | 10.22   |  |             | Employment Agreement dated December 12, 2003 by and between
    the Company and Mark Ianni (incorporated by reference to
    Exhibit 10.22 of Amendment No. 4 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed January 20, 2004).                                                                            
|        | 10.23   |  |             | Employment Agreement dated December 17, 2003 by and between
    the Company and Lawrence Spanley, Jr. (incorporated by
    reference to Exhibit 10.23 of Amendment No. 4 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 20, 2004).                                                                 
|        | 10.24   |  |             | Letter to Peter Edison from Peter Edison dated March 5,
    2003 outlining the 2003 bonus levels (incorporated by reference
    to Exhibit 10.24 of Amendment No. 3 to Registration
    Statement on Form S-1 (File No. 333-86332), filed
    January 8, 2004).                                                                                     

45



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##### 



|        |       |  |             |                                                                                                                                                                                                                                                                                                                                  
|------- | ----- |  | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |            
|Number  |       |  | Description
|        |       |  |            
|        | 10.25 |  |             | Letter to Michele Bergerac from Peter Edison dated March 5,
    2003 outlining the 2003 bonus levels (incorporated by reference
    to Exhibit 10.25 of Amendment No. 3 to Registration
    Statement on Form S-1 (File No. 333-86332), filed
    January 8, 2004).                                                              
|        | 10.26 |  |             | Letter to Mark Ianni from Peter Edison dated March 5, 2003
    outlining the 2003 bonus levels (incorporated by reference to
    Exhibit 10.26 of Amendment No. 3 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                                                      
|        | 10.27 |  |             | Letter to Stan Tusman from Peter Edison dated March 5, 2003
    outlining the 2003 bonus levels (incorporated by reference to
    Exhibit 10.27 of Amendment No. 3 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                                                     
|        | 10.28 |  |             | Letter to Joe Vander Pluym from Peter Edison dated March 5,
    2003 outlining the 2003 bonus levels (incorporated by reference
    to Exhibit 10.28 of Amendment No. 3 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                                                
|        | 10.29 |  |             | Letter to Larry Spanley from Peter Edison dated March 5,
    2003 outlining the 2003 bonus levels (incorporated by reference
    to Exhibit 10.29 of Amendment No. 3 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                                                   
|        | 10.30 |  |             | Amendment to Software License Agreement and Software Support
    Agreement dated June 4, 1999 by and between JDA
    Software, Inc. and the Company (incorporated by reference
    to Exhibit 10.30 of Amendment No. 4 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 20, 2004).
|        | 10.31 |  |             | Financial Advisor Agreement, dated February 4, 2004, by and
    between Ryan Beck & Co., Inc. and the Company.(1)                                                                                                                                                                                                                
|        | 10.32 |  |             | Underwriting Agreement, dated February 4, 2004, by and
    among the Company, Ryan Beck & Co. Inc. and BB&T
    Capital Markets, a Division of Scott & Stringfellow
    Inc., as representatives of the underwriters named therein.(1)                                                                                           
|        | 10.33 |  |             | Letter to Peter Edison from Peter Edison dated March 1,
    2004 outlining the 2004 bonus levels.(1)                                                                                                                                                                                                                             
|        | 10.34 |  |             | Letter to Michele Bergerac from Peter Edison dated March 1,
    2004 outlining the 2004 bonus levels.(1)                                                                                                                                                                                                                         
|        | 10.35 |  |             | Letter to Mark Ianni from Peter Edison dated March 1, 2004
    outlining the 2004 bonus levels.(1)                                                                                                                                                                                                                               
|        | 10.36 |  |             | Letter to Stan Tusman from Peter Edison dated March 1, 2004
    outlining the 2004 bonus levels.(1)                                                                                                                                                                                                                              
|        | 10.37 |  |             | Letter to Joe Vander Pluym from Peter Edison dated March 1,
    2004 outlining the 2004 bonus levels.(1)                                                                                                                                                                                                                         
|        | 10.38 |  |             | Letter to Larry Spanley from Peter Edison dated March 1,
    2004 outlining the 2004 bonus levels.(1)                                                                                                                                                                                                                            
|        | 11.1  |  |             | Statement regarding computation of per share earnings
    (incorporated by reference from Note 15 of the Financial
    Statements).                                                                                                                                                                                              
|        | 14.1  |  |             | Code of Business Conduct.(1)                                                                                                                                                                                                                                                                                                     
|        | 23.1  |  |             | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                        
|        | 24.1  |  |             | Power of Attorney.(1)                                                                                                                                                                                                                                                                                                            
|        | 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 Certifications (pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002, executed by Chief Executive
    Officer and the Chief Financial Officer).                                                                                                                                                            






|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|(1) | Previously filed with original Annual Report on Form 10-K
    for fiscal year 2003 filed on April 2, 2004.

46



---



##### 



INDEX TO FINANCIAL STATEMENTS


Years Ended January 4, 2003 and January 3, 2004


Contents


|                                                 |  |  |     | 
|------------------------------------------------ |  |  | --- | 
|Report of Independent Auditors                   |  |  | F-2 | 
|Balance Sheets                                   |  |  | F-3 | 
|Statements of Operations                         |  |  | F-4 | 
|Statements of Shareholders Equity
    (Deficit) |  |  | F-5 | 
|Statements of Cash Flows                         |  |  | F-6 | 
|Notes to Financial Statements                    |  |  | F-7 | 

F-1



---



##### 



Report of Independent Registered Public Accounting Firm


















| |                      
| | ---------------------
| | /s/ Ernst & Young LLP













F-2



---



##### 



BAKERS FOOTWEAR GROUP, INC.





BALANCE SHEETS


|                                                          |                                                                                                |             |            |            |             |   |            |            |  
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------- | ---------- | ---------- | ----------- | - | ---------- | ---------- | -
|                                                          |                                                                                                | January 4,  |            |            | January 3,  |  
|                                                          |                                                                                                | 2003        |            |            | 2004        |  
|                                                          |                                                                                                |             |            |            |             |  
|                                                          |                                                                                                | as restated |            |            | as restated |  
|ASSETS                                                   
|Current assets:                                           |                                                                                                |             |            |            |             |   |            |           
|                                                          | Cash and cash equivalents                                                                      |             | $          |           |             |   | $          | 574,475    |  
|                                                          | Accounts receivable                                                                            |             |            | 573,898    |             |   |            | 1,051,854  |  
|                                                          | Other receivables                                                                              |             |            | 420,358    |             |   |            | 186,011    |  
|                                                          | Inventories                                                                                    |             |            | 14,279,602 |             |   |            | 12,780,256 |  
|                                                          | Prepaid expenses and other current assets                                                      |             |            | 630,784    |             |   |            | 1,029,908  |  
|                                                          |                                                                                                |             |            |            |             |  
|Total current assets                                      |                                                                                                |             | 15,904,642 |            |             |   | 15,622,504 |           
|Property and equipment, net                               |                                                                                                |             | 13,180,858 |            |             |   | 13,395,838 |           
|Other assets                                              |                                                                                                |             | 937,482    |            |             |   | 922,825    |           
|                                                          |                                                                                                |             |            |            |             |  
|Total assets                                              |                                                                                                | $           | 30,022,982 |            |             | $ | 29,941,167 |           
|                                                          |                                                                                                |             |            |            |             |  
|                                                         
|LIABILITIES AND SHAREHOLDERS EQUITY                     
|Current liabilities:                                      |                                                                                                |             |            |            |             |   |            |           
|                                                          | Accounts payable                                                                               |             | $          | 2,966,940  |             |   | $          | 3,529,652  |  
|                                                          | Accrued expenses                                                                               |             |            | 4,328,533  |             |   |            | 5,986,873  |  
|                                                          | Sales tax payable                                                                              |             |            | 1,035,316  |             |   |            | 1,257,294  |  
|                                                          | Deferred income                                                                                |             |            | 463,253    |             |   |            | 809,122    |  
|                                                          | Revolving credit agreement                                                                     |             |            | 7,043,218  |             |   |            | 2,169,474  |  
|                                                          | Class A stock purchase warrants                                                                |             |            |           |             |   |            | 837,500    |  
|                                                          | Class A stock redemption obligation                                                            |             |            |           |             |   |            | 210,799    |  
|                                                          | Current maturities of capital lease obligations                                                |             |            | 709,574    |             |   |            | 947,332    |  
|                                                          | Current maturities of long-term subordinated debt                                              |             |            | 219,901    |             |   |            | 645,501    |  
|                                                          |                                                                                                |             |            |            |             |  
|Total current liabilities                                 |                                                                                                |             | 16,766,735 |            |             |   | 16,393,547 |           
|Long-term subordinated debt, less current maturities      |                                                                                                |             | 847,463    |            |             |   | 214,409    |           
|Obligations under capital leases, less current maturities |                                                                                                |             | 1,407,592  |            |             |   | 1,347,112  |           
|Accrued rent liabilities                                  |                                                                                                |             | 2,144,857  |            |             |   | 2,597,770  |           
|Class A stock purchase warrants                           |                                                                                                |             | 686,860    |            |             |   |           |           
|Class A stock redemption obligation                       |                                                                                                |             | 1,262,696  |            |             |   | 1,178,527  |           
|Class B stock redemption obligation                       |                                                                                                |             | 238,543    |            |             |   | 455,316    |           
|Subordinated convertible debentures                       |                                                                                                |             | 4,900,000  |            |             |   | 4,500,000  |           
|Shareholders equity:                                     |                                                                                                |             |            |            |             |   |            |           
|                                                          | Class A stock, $0.001 par value; 3,000,000 shares
    authorized, 1,426,188 shares outstanding |             |            | 1,426      |             |   |            | 1,426      |  
|                                                          | Class B stock, $0.001 par value; 500,000 shares
    authorized                                 |             |            |           |             |   |            |           |  
|                                                          | Class C stock, $0.001 par value; 1,500,000 shares
    authorized                               |             |            |           |             |   |            |           |  
|                                                          | Deferred stock compensation                                                                    |             |            | (127,621   | )           |   |            |           |  
|                                                          | Additional paid-in capital                                                                     |             |            | 3,608,740  |             |   |            | 3,756,814  |  
|                                                          | Accumulated deficit                                                                            |             |            | (1,714,309 | )           |   |            | (503,754   | )
|                                                          |                                                                                                |             |            |            |             |  
|Total shareholders equity                                |                                                                                                |             | 1,768,236  |            |             |   | 3,254,486  |           
|                                                          |                                                                                                |             |            |            |             |  
|Total liabilities and shareholders equity                |                                                                                                | $           | 30,022,982 |            |             | $ | 29,941,167 |           
|                                                          |                                                                                                |             |            |            |             |  



F-3



---



##### 



BAKERS FOOTWEAR GROUP, INC.





STATEMENTS OF OPERATIONS


|                                                                                               |                                                                                     |             |             |            |             |   |             |             |   |   |             |            |  
|---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------- | ----------- | ---------- | ----------- | - | ----------- | ----------- | - | - | ----------- | ---------- | -
|                                                                                               |                                                                                     | Year Ended  |             |            | Year Ended  |   |             | Year Ended  |  
|                                                                                               |                                                                                     | January 5,  |             |            | January 4,  |   |             | January 3,  |  
|                                                                                               |                                                                                     | 2002        |             |            | 2003        |   |             | 2004        |  
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|                                                                                               |                                                                                     | as restated |             |            | as restated |   |             | as restated |  
|Net sales                                                                                      |                                                                                     | $           | 140,841,929 |            |             | $ | 151,147,810 |             |   | $ | 148,223,553 |           
|Cost of merchandise sold, occupancy, and buying expenses                                       |                                                                                     |             | 98,457,072  |            |             |   | 106,353,316 |             |   |   | 103,396,593 |           
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Gross profit                                                                                   |                                                                                     |             | 42,384,857  |            |             |   | 44,794,494  |             |   |   | 44,826,960  |           
|Operating expenses:                                                                            |                                                                                     |             |             |            |             |   |             |             |   |   |             |           
|                                                                                               | Selling                                                                             |             |             | 27,135,109 |             |   |             | 30,836,538  |   |   |             | 29,599,090 |  
|                                                                                               | General and administrative                                                          |             |             | 9,960,538  |             |   |             | 11,178,931  |   |   |             | 11,454,347 |  
|                                                                                               | Loss on disposal of property and equipment                                          |             |             | 24,997     |             |   |             | 95,785      |   |   |             | 188,629    |  
|                                                                                               | Impairment of long-lived assets                                                     |             |             | 4,540      |             |   |             | 120,114     |   |   |             | 127,133    |  
|                                                                                               | Write-off of deferred initial public offering costs                                 |             |             |           |             |   |             | 1,708,466   |   |   |             |           |  
|                                                                                               | Amortization of excess of acquired net assets over cost                             |             |             | (1,112,574 | )           |   |             |            |   |   |             |           |  
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Operating income                                                                               |                                                                                     |             | 6,372,247   |            |             |   | 854,660     |             |   |   | 3,457,761   |           
|Other income (expense):                                                                        |                                                                                     |             |             |            |             |   |             |             |   |   |             |           
|                                                                                               | Interest expense                                                                    |             |             | (1,086,729 | )           |   |             | (1,626,306  | ) |   |             | (1,671,739 | )
|                                                                                               | State income tax (expense) benefit                                                  |             |             | (315,667   | )           |   |             | 163,645     |   |   |             | (67,819    | )
|                                                                                               | Other income                                                                        |             |             | 61,015     |             |   |             | 2,833       |   |   |             | 113,371    |  
|                                                                                               | Other expense                                                                       |             |             | (133,490   | )           |   |             | (109,629    | ) |   |             | (201,668   | )
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Income (loss) before cumulative effect of change in accounting                                 |                                                                                     |             | 4,897,376   |            |             |   | (714,797    | )           |   |   | 1,629,906   |           
|Cumulative effect of change in accounting                                                      |                                                                                     |             |            |            |             |   | 2,774,899   |             |   |   |            |           
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Net income                                                                                     |                                                                                     | $           | 4,897,376   |            |             | $ | 2,060,102   |             |   | $ | 1,629,906   |           
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Basic earnings per share                                                                       |                                                                                     | $           | 3.27        |            |             | $ | 1.36        |             |   | $ | 0.90        |           
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Diluted earnings per share                                                                     |                                                                                     | $           | 2.14        |            |             | $ | 0.96        |             |   | $ | 0.77        |           
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Pro forma amounts assuming SFAS No. 142 had been
    adopted as of December 31, 2000 (Note 1): |                                                                                     |             |             |            |             |   |             |             |   |   |             |           
|                                                                                               | Income (loss) before cumulative effect of change in accounting                      |             | $           | 3,784,802  |             |   | $           | (714,797    | ) |   | $           | 1,629,906  |  
|                                                                                               | Cumulative effect of change in accounting                                           |             |             | 3,885,787  |             |   |             |            |   |   |             |           |  
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|                                                                                               | Net income (loss)                                                                   |             | $           | 7,670,589  |             |   | $           | (714,797    | ) |   | $           | 1,629,906  |  
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Unaudited pro forma income tax information (Note 13):                                          |                                                                                     |             |             |            |             |   |             |             |   |   |             |           
|                                                                                               | Income (loss) before cumulative effect of change in accounting
    and income taxes |             | $           | 4,808,657  |             |   | $           | (878,442    | ) |   | $           | 1,697,725  |  
|                                                                                               | Provision for (benefit from) income taxes                                           |             |             | 1,581,390  |             |   |             | (302,363    | ) |   |             | 657,758    |  
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Income (loss) before cumulative effect of change in accounting                                 |                                                                                     |             | 3,227,267   |            |             |   | (576,079    | )           |   |   | 1,039,967   |           
|Cumulative effect of change in accounting, net of taxes                                        |                                                                                     |             |            |            |             |   | 1,763,934   |             |   |   |            |           
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Net income                                                                                     |                                                                                     | $           | 3,227,267   |            |             | $ | 1,187,855   |             |   | $ | 1,039,967   |           
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|Net income per common share:                                                                   |                                                                                     |             |             |            |             |   |             |             |   |   |             |           
|                                                                                               | Basic                                                                               |             | $           | 2.10       |             |   | $           | 0.75        |   |   | $           | 0.49       |  
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  
|                                                                                               | Diluted                                                                             |             | $           | 1.41       |             |   | $           | 0.54        |   |   | $           | 0.47       |  
|                                                                                               |                                                                                     |             |             |            |             |   |             |             |  



F-4



---



##### 



BAKERS FOOTWEAR GROUP, INC.





STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)


|                                                          |                                                                                       |                |           |        |        |   |            |         |  |                |              |         |             |         |          |         |  |   |            |            |  
|--------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------- | --------- | ------ | ------ | - | ---------- | ------- |  | -------------- | ------------ | ------- | ----------- | ------- | -------- | ------- |  | - | ---------- | ---------- | -
|                                                          |                                                                                       | Class A Voting |           |        |        |   |            |         | 
|                                                          |                                                                                       | Common Stock   |           |        |        |   |            |         | 
|                                                          |                                                                                       |                |           |        |        |   |            |         | 
|                                                          |                                                                                       | Shares         |           |        |        |   | Additional |         |  |                |              |        
|                                                          |                                                                                       | Issued and     |           |        |        |   | Paid-In    |         |  | Deferred Stock |              |         | Accumulated |        
|                                                          |                                                                                       | Outstanding    |           |        | Amount |   |            | Capital |  |                | Compensation |         |             | Deficit |         
|                                                          |                                                                                       |                |           |        |        |   |            |         |  |                |              |         |             |         |         
|Balance at December 30, 2000  as previously
    reported |                                                                                       |                | 1,408,988 |        |        | $ | 1,409      |         |  | $              | 3,538,851    |         |             | $       | (440,909 | )       |  | $ | (4,304,510 | )         
|Prior year adjustment                                     |                                                                                       |                |          |        |        |   |           |         |  |                |             |         |             |         |         |         |  |   | (38,389    | )         
|                                                          |                                                                                       |                |           |        |        |   |            |         |  |                |              |         |             |         |         
|Balance at December 30, 2000 as restated                  |                                                                                       |                | 1,408,988 |        |        |   | 1,409      |         |  |                | 3,538,851    |         |             |         | (440,909 | )       |  |   | (4,342,899 | )         
|                                                          | Distributions to shareholders                                                         |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | (2,167,191 | )
|                                                          | Impact of the termination of put options associated with
    Class A redeemable stock |                |           | 17,200 |        |   |            | 17      |  |                |              | 69,889  |             |         |          |        |  |   |            | (47,868    | )
|                                                          | Compensation cost from stock option grants                                            |                |           |       |        |   |            |        |  |                |              |        |             |         |          | 69,623  |  |   |            |           |  
|                                                          | Accretion of Class B redeemable stock as restated                                     |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | (179,968   | )
|                                                          | Net income as restated                                                                |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | 4,897,376  |  
|                                                          |                                                                                       |                |           |        |        |   |            |         |  |                |              |         |             |         |         
|Balance at January 5, 2002 as restated                    |                                                                                       |                | 1,426,188 |        |        |   | 1,426      |         |  |                | 3,608,740    |         |             |         | (371,286 | )       |  |   | (1,840,550 | )         
|                                                          | Distributions to shareholders                                                         |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | (1,820,172 | )
|                                                          | Compensation cost from stock option grants                                            |                |           |       |        |   |            |        |  |                |              |        |             |         |          | 243,665 |  |   |            |           |  
|                                                          | Accretion of Class A redeemable stock                                                 |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | (55,114    | )
|                                                          | Accretion of Class B redeemable stock as restated                                     |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | (58,575    | )
|                                                          | Net income as restated                                                                |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | 2,060,102  |  
|                                                          |                                                                                       |                |           |        |        |   |            |         |  |                |              |         |             |         |         
|Balance at January 4, 2003 as restated                    |                                                                                       |                | 1,426,188 |        |        |   | 1,426      |         |  |                | 3,608,740    |         |             |         | (127,621 | )       |  |   | (1,714,309 | )         
|                                                          | Distributions to shareholders                                                         |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | (75,949    | )
|                                                          | Compensation cost from stock option grants                                            |                |           |       |        |   |            |        |  |                |              | 148,074 |             |         |          | 127,621 |  |   |            |           |  
|                                                          | Accretion of Class A redeemable stock                                                 |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | (126,629   | )
|                                                          | Accretion of Class B redeemable stock as restated                                     |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | (216,773   | )
|                                                          | Net income as restated                                                                |                |           |       |        |   |            |        |  |                |              |        |             |         |          |        |  |   |            | 1,629,906  |  
|                                                          |                                                                                       |                |           |        |        |   |            |         |  |                |              |         |             |         |         
|Balance at January 3, 2004 as restated                    |                                                                                       |                | 1,426,188 |        |        | $ | 1,426      |         |  | $              | 3,756,814    |         |             | $       |         |         |  | $ | (503,754   | )         
|                                                          |                                                                                       |                |           |        |        |   |            |         |  |                |              |         |             |         |         



F-5



---



##### 



BAKERS FOOTWEAR GROUP, INC.





STATEMENTS OF CASH FLOWS


|                                                                                                |                                                         |                                           |            |            |             |   |            |             |            |   |            |           |           |  
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ---------- | ---------- | ----------- | - | ---------- | ----------- | ---------- | - | ---------- | --------- | --------- | -
|                                                                                                |                                                         | Year Ended                                |            |            | Year Ended  |   |            | Year Ended  |           
|                                                                                                |                                                         | January 5,                                |            |            | January 4,  |   |            | January 3,  |           
|                                                                                                |                                                         | 2002                                      |            |            | 2003        |   |            | 2004        |           
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           
|                                                                                                |                                                         | as restated                               |            |            | as restated |   |            | as restated |           
|Operating activities                                                                            |                                                         |                                           |            |            |             |   |            |             |            |   |            |          
|Net income                                                                                      |                                                         | $                                         | 4,897,376  |            |             | $ | 2,060,102  |             |            | $ | 1,629,906  |          
|Adjustments to reconcile net income to net cash provided by
    (used in) operating activities: |                                                         |                                           |            |            |             |   |            |             |            |   |            |          
|                                                                                                | Cumulative effect of change in accounting               |                                           |            |           |             |   |            | (2,774,899  | )          |   |            |          |          
|                                                                                                | Depreciation and amortization                           |                                           |            | 1,432,742  |             |   |            | 2,595,842   |            |   |            | 2,941,110 |          
|                                                                                                | Amortization of goodwill                                |                                           |            | 7,920      |             |   |            |            |            |   |            |          |          
|                                                                                                | Amortization of deferred debt issuance costs            |                                           |            | 26,400     |             |   |            | 92,286      |            |   |            | 20,415    |          
|                                                                                                | Stock-based compensation expense                        |                                           |            | 69,623     |             |   |            | 243,665     |            |   |            | 275,695   |          
|                                                                                                | Amortization of excess of acquired net assets over cost |                                           |            | (1,112,574 | )           |   |            |            |            |   |            |          |          
|                                                                                                | Amortization of debt discount                           |                                           |            | 86,424     |             |   |            | 124,160     |            |   |            | 12,447    |          
|                                                                                                | Accretion of stock warrants                             |                                           |            | 111,520    |             |   |            | 140,094     |            |   |            | 150,640   |          
|                                                                                                | Impairment of long-lived assets                         |                                           |            | 4,540      |             |   |            | 120,114     |            |   |            | 127,133   |          
|                                                                                                | Loss on disposal of property and equipment              |                                           |            | 24,997     |             |   |            | 95,785      |            |   |            | 188,629   |          
|                                                                                                | Changes in operating assets and liabilities:            |                                           |            |            |             |   |            |             |            |   |            |           |          
|                                                                                                |                                                         | Accounts receivable                       |            |            | (401,419    | ) |            |             | 233,175    |   |            |           | (243,609  | )
|                                                                                                |                                                         | Inventories                               |            |            | 1,262,026   |   |            |             | (2,989,356 | ) |            |           | 1,499,346 |  
|                                                                                                |                                                         | Prepaid expenses and other current assets |            |            | (209,941    | ) |            |             | (48,630    | ) |            |           | (399,124  | )
|                                                                                                |                                                         | Other assets                              |            |            | (419,118    | ) |            |             | (90,853    | ) |            |           | (454,483  | )
|                                                                                                |                                                         | Accounts payable                          |            |            | (914,222    | ) |            |             | (41,264    | ) |            |           | 562,712   |  
|                                                                                                |                                                         | Accrued expenses and deferred income      |            |            | 1,327,539   |   |            |             | (618,421   | ) |            |           | 2,151,187 |  
|                                                                                                |                                                         | Accrued rent liabilities                  |            |            | 583,771     |   |            |             | 905,817    |   |            |           | 452,912   |  
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           
|Net cash provided by operating activities                                                       |                                                         |                                           | 6,777,604  |            |             |   | 47,617     |             |            |   | 8,914,916  |          
|Investing activities                                                                            |                                                         |                                           |            |            |             |   |            |             |            |   |            |          
|Purchase of property and equipment                                                              |                                                         |                                           | (3,667,981 | )          |             |   | (7,160,161 | )           |            |   | (2,404,538 | )        
|Proceeds from sale of property and equipment                                                    |                                                         |                                           | 1,825      |            |             |   | 1,793      |             |            |   | 2,914      |          
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           
|Net cash used in investing activities                                                           |                                                         |                                           | (3,666,156 | )          |             |   | (7,158,368 | )           |            |   | (2,401,624 | )        
|Financing activities                                                                            |                                                         |                                           |            |            |             |   |            |             |            |   |            |          
|Net advances (repayments) under revolving notes payable                                         |                                                         |                                           | (777,452   | )          |             |   | 4,391,942  |             |            |   | (4,873,744 | )        
|Proceeds from issuance of subordinated convertible debentures                                   |                                                         |                                           |           |            |             |   | 4,900,000  |             |            |   |           |          
|Principal payments under capital lease obligations                                              |                                                         |                                           | (326,553   | )          |             |   | (591,000   | )           |            |   | (844,223   | )        
|Principal payments of subordinated debt                                                         |                                                         |                                           | (573,696   | )          |             |   | (265,321   | )           |            |   | (219,901   | )        
|Cash distributions to shareholders                                                              |                                                         |                                           | (2,167,191 | )          |             |   | (1,820,172 | )           |            |   | (949       | )        
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           
|Net cash provided by (used in) financing activities                                             |                                                         |                                           | (3,844,892 | )          |             |   | 6,615,449  |             |            |   | (5,938,817 | )        
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           
|Net increase (decrease) in cash and cash equivalents                                            |                                                         |                                           | (733,444   | )          |             |   | (495,302   | )           |            |   | 574,475    |          
|Cash and cash equivalents at beginning of period                                                |                                                         |                                           | 1,228,746  |            |             |   | 495,302    |             |            |   |           |          
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           
|Cash and cash equivalents at end of period                                                      |                                                         | $                                         | 495,302    |            |             | $ |           |             |            | $ | 574,475    |          
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           
|Supplemental disclosures of cash flow information                                               |                                                         |                                           |            |            |             |   |            |             |            |   |            |          
|Cash paid for state income taxes                                                                |                                                         | $                                         | 243,095    |            |             | $ | 106,685    |             |            | $ | 31,126     |          
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           
|Cash paid for interest                                                                          |                                                         | $                                         | 874,024    |            |             | $ | 1,019,404  |             |            | $ | 1,650,270  |          
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           
|Noncash investing and financing transactions                                                    |                                                         |                                           |            |            |             |   |            |             |            |   |            |          
|Capital lease obligations                                                                       |                                                         | $                                         | 2,315,915  |            |             | $ | 718,804    |             |            | $ | 1,021,500  |          
|                                                                                                |                                                         |                                           |            |            |             |   |            |             |           



F-6



---



##### 



BAKERS FOOTWEAR GROUP, INC.





NOTES TO FINANCIAL STATEMENTS


January 3, 2004




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies



| |           
| | ----------
| | Operations







| |                  
| | -----------------
| | Accounting Period





| |                 
| | ----------------
| | Use of Estimates





| |                  
| | -----------------
| | Reclassifications





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |            
| | -----------
| | Inventories



F-7



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                       
| | ----------------------
| | Property and Equipment

Accounting for the Costs of Computer Software Developed
for or Obtained for Internal Use




| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets

Accounting for the
Impairment or Disposal of Long-Lived Assets






| |                    
| | -------------------
| | Revenue Recognition





| |                         
| | ------------------------
| | Cost of Merchandise Sold





| |                 
| | ----------------
| | Operating Leases





F-8



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |                         
| | ------------------------
| | Stock-Based Compensation

, Accounting for Stock-Based
Compensation Accounting
for Stock Issued to Employees






Marketing Expense




Offering Costs






Earnings per Share




F-9



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




Income Taxes








Accounting for Income
Taxes,


Distributions to Shareholders




Store Lease Acquisitions






Deferred Income




F-10



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






Business Segments




Shipping and Handling Costs




Goodwill


Goodwill and
Other Intangible Assets,




|                                                        |  |            |            |  
|------------------------------------------------------- |  | ---------- | ---------- | -
|                                                        |  | Year Ended |           
|                                                        |  | January 5, |           
|                                                        |  | 2002       |           
|                                                        |  |            |           
|Reported net income                                     |  | $          | 4,897,376  |  
|Amortization of goodwill                                |  |            | 7,920      |  
|Amortization of excess of acquired net assets over cost |  |            | (1,112,574 | )
|                                                        |  |            |           
|Adjusted net income                                     |  | $          | 3,792,722  |  
|                                                        |  |            |           
|Basic earnings per share  as reported                  |  | $          | 3.27       |  
|                                                        |  |            |           
|Diluted earnings per share  as reported                |  | $          | 2.14       |  
|                                                        |  |            |           
|Basic earnings per share  as adjusted                  |  | $          | 2.49       |  
|                                                        |  |            |           
|Diluted earnings per share  as adjusted                |  | $          | 1.67       |  
|                                                        |  |            |           



|   |                                    
|-- | -----------------------------------
|2. | Restatement of Financial Statements



F-11



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)








|                                                        |                                                                              |                          |            |           |        |   |          |          |   |   |            |           | 
|------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------ | ---------- | --------- | ------ | - | -------- | -------- | - | - | ---------- | --------- | 
|                                                        |                                                                              | Statements of Operations |           
|                                                        |                                                                              |                          |           
|                                                        |                                                                              | As reported              |            |           | Change |   |          | Restated |  
|                                                        |                                                                              |                          |            |           |        |   |          |          |  
|Fiscal Year ended January 5, 2002                       |                                                                              |                          |            |           |        |   |          |          |   |   |            |          
|Cost of merchandise sold, occupancy and buying expenses |                                                                              | $                        | 98,247,080 |           |        | $ | 209,992  |          |   | $ | 98,457,072 |          
|Gross profit                                            |                                                                              |                          | 42,594,849 |           |        |   | (209,992 | )        |   |   | 42,384,857 |          
|Selling expense                                         |                                                                              |                          | 27,097,515 |           |        |   | 37,594   |          |   |   | 27,135,109 |          
|General and administrative expense                      |                                                                              |                          | 10,145,847 |           |        |   | (185,309 | )        |   |   | 9,960,538  |          
|Operating income                                        |                                                                              |                          | 6,434,524  |           |        |   | (62,277  | )        |   |   | 6,372,247  |          
|Income before cumulative effect of change in accounting |                                                                              |                          | 4,959,653  |           |        |   | (62,277  | )        |   |   | 4,897,376  |          
|Net income                                              |                                                                              |                          | 4,959,653  |           |        |   | (62,277  | )        |   |   | 4,897,376  |          
|Net income per common share  basic                     |                                                                              |                          | 3.31       |           |        |   | (0.04    | )        |   |   | 3.27       |          
|Net income per common share  diluted                   |                                                                              |                          | 2.17       |           |        |   | (0.03    | )        |   |   | 2.14       |          
|Unaudited pro forma information:                        |                                                                              |                          |            |           |        |   |          |          |   |   |            |          
|                                                        | Income before cumulative effect of change in accounting and
    income taxes |                          |            | 4,870,934 |        |   |          | (62,277  | ) |   |            | 4,808,657 | 
|                                                        | Provision for income taxes                                                   |                          |            | 1,605,055 |        |   |          | (23,665  | ) |   |            | 1,581,390 | 
|                                                        | Income before cumulative effect of change in accounting                      |                          |            | 3,265,879 |        |   |          | (38,612  | ) |   |            | 3,227,267 | 
|                                                        | Net income                                                                   |                          |            | 3,265,879 |        |   |          | (38,612  | ) |   |            | 3,227,267 | 
|                                                        | Net income per common share  basic                                          |                          |            | 2.12      |        |   |          | (0.02    | ) |   |            | 2.10      | 
|                                                        | Net income per common share  diluted                                        |                          |            | 1.44      |        |   |          | (0.03    | ) |   |            | 1.41      | 

F-12



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)


|                                                        |                                                                              |                          |             |           |        |   |          |          |   |   |             |           |  
|------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------ | ----------- | --------- | ------ | - | -------- | -------- | - | - | ----------- | --------- | -
|                                                        |                                                                              | Statements of Operations |            
|                                                        |                                                                              |                          |            
|                                                        |                                                                              | As reported              |             |           | Change |   |          | Restated |  
|                                                        |                                                                              |                          |             |           |        |   |          |          |  
|Fiscal Year ended January 4, 2003                       |                                                                              |                          |             |           |        |   |          |          |   |   |             |          
|Cost of merchandise sold, occupancy and buying expenses |                                                                              | $                        | 106,011,753 |           |        | $ | 341,563  |          |   | $ | 106,353,316 |          
|Gross profit                                            |                                                                              |                          | 45,136,057  |           |        |   | (341,563 | )        |   |   | 44,794,494  |          
|Selling expense                                         |                                                                              |                          | 30,774,478  |           |        |   | 62,060   |          |   |   | 30,836,538  |          
|General and administrative expense                      |                                                                              |                          | 11,358,384  |           |        |   | (179,453 | )        |   |   | 11,178,931  |          
|Operating income                                        |                                                                              |                          | 1,078,830   |           |        |   | (224,170 | )        |   |   | 854,660     |          
|Loss before cumulative effect of change in accounting   |                                                                              |                          | (490,627    | )         |        |   | (224,170 | )        |   |   | (714,797    | )        
|Net income                                              |                                                                              |                          | 2,284,272   |           |        |   | (224,170 | )        |   |   | 2,060,102   |          
|Net income per common share  basic                     |                                                                              |                          | 1.50        |           |        |   | (0.14    | )        |   |   | 1.36        |          
|Net income per common share  diluted                   |                                                                              |                          | 1.06        |           |        |   | (0.10    | )        |   |   | 0.96        |          
|Unaudited pro forma information:                        |                                                                              |                          |             |           |        |   |          |          |   |   |             |          
|                                                        | Loss before cumulative effect of change in accounting and income
    taxes   |                          |             | (654,272  | )      |   |          | (224,170 | ) |   |             | (878,442  | )
|                                                        | Benefit from income taxes                                                    |                          |             | (217,178  | )      |   |          | (85,185  | ) |   |             | (302,363  | )
|                                                        | Loss before cumulative effect of change in accounting                        |                          |             | (437,094  | )      |   |          | (138,985 | ) |   |             | (576,079  | )
|                                                        | Net income                                                                   |                          |             | 1,326,840 |        |   |          | (138,985 | ) |   |             | 1,187,855 |  
|                                                        | Net income per common share  basic                                          |                          |             | 0.83      |        |   |          | (0.08    | ) |   |             | 0.75      |  
|                                                        | Net income per common share  diluted                                        |                          |             | 0.64      |        |   |          | (0.10    | ) |   |             | 0.54      |  
|Fiscal Year ended January 3, 2004                       |                                                                              |                          |             |           |        |   |          |          |   |   |             |          
|Cost of merchandise sold, occupancy and buying expenses |                                                                              | $                        | 103,057,442 |           |        | $ | 339,151  |          |   | $ | 103,396,593 |          
|Gross profit                                            |                                                                              |                          | 45,166,111  |           |        |   | (339,151 | )        |   |   | 44,826,960  |          
|Selling expense                                         |                                                                              |                          | 29,491,123  |           |        |   | 107,967  |          |   |   | 29,599,090  |          
|General and administrative expense                      |                                                                              |                          | 11,856,477  |           |        |   | (402,130 | )        |   |   | 11,454,347  |          
|Operating income                                        |                                                                              |                          | 3,502,749   |           |        |   | (44,988  | )        |   |   | 3,457,761   |          
|Income before cumulative effect of change in accounting |                                                                              |                          | 1,674,894   |           |        |   | (44,988  | )        |   |   | 1,629,906   |          
|Net income                                              |                                                                              |                          | 1,674,894   |           |        |   | (44,988  | )        |   |   | 1,629,906   |          
|Net income per common share  basic                     |                                                                              |                          | 0.93        |           |        |   | (0.03    | )        |   |   | 0.90        |          
|Net income per common share  diluted                   |                                                                              |                          | 0.79        |           |        |   | (0.02    | )        |   |   | 0.77        |          
|Unaudited pro forma information:                        |                                                                              |                          |             |           |        |   |          |          |   |   |             |          
|                                                        | Income before cumulative effect of change in accounting and
    income taxes |                          |             | 1,742,713 |        |   |          | (44,988  | ) |   |             | 1,697,725 |  
|                                                        | Provision for income taxes                                                   |                          |             | 674,853   |        |   |          | (17,095  | ) |   |             | 657,758   |  
|                                                        | Income before cumulative effect of change in accounting                      |                          |             | 1,067,860 |        |   |          | (27,893  | ) |   |             | 1,039,967 |  
|                                                        | Net income                                                                   |                          |             | 1,067,860 |        |   |          | (27,893  | ) |   |             | 1,039,967 |  
|                                                        | Net income per common share  basic                                          |                          |             | 0.50      |        |   |          | (0.01    | ) |   |             | 0.49      |  
|                                                        | Net income per common share  diluted                                        |                          |             | 0.48      |        |   |          | (0.01    | ) |   |             | 0.47      |  

F-13



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)


|                                    |  |                |            |  |        |   |           |          |  |   |            | 
|----------------------------------- |  | -------------- | ---------- |  | ------ | - | --------- | -------- |  | - | ---------- | 
|                                    |  | Balance Sheets |           
|                                    |  |                |           
|                                    |  | As reported    |            |  | Change |   |           | Restated | 
|                                    |  |                |            |  |        |   |           |          | 
|As of January 4, 2003               |  |                |            |  |        |   |           |          |  |   |            | 
|Property and equipment, net         |  | $              | 12,249,993 |  |        | $ | 930,865   |          |  | $ | 13,180,858 | 
|Total assets                        |  |                | 29,092,117 |  |        |   | 930,865   |          |  |   | 30,022,982 | 
|Accrued rent liabilities            |  |                | 889,156    |  |        |   | 1,255,701 |          |  |   | 2,144,857  | 
|Class B stock redemption obligation |  |                | 283,500    |  |        |   | (44,957   | )        |  |   | 238,543    | 
|Total shareholders equity          |  |                | 2,048,115  |  |        |   | (279,879  | )        |  |   | 1,768,236  | 
|As of January 3, 2004               |  |                |            |  |        |   |           |          |  |   |            | 
|Property and equipment, net         |  |                | 12,459,178 |  |        |   | 936,660   |          |  |   | 13,395,838 | 
|Total assets                        |  |                | 29,004,507 |  |        |   | 936,660   |          |  |   | 29,941,167 | 
|Accrued rent liabilities            |  |                | 1,291,286  |  |        |   | 1,306,484 |          |  |   | 2,597,770  | 
|Class B stock redemption obligation |  |                | 506,500    |  |        |   | (51,184   | )        |  |   | 455,316    | 
|Total shareholders equity          |  |                | 3,573,126  |  |        |   | (318,640  | )        |  |   | 3,254,486  | 

|                                                    |  |                          |            |   |        |   |          |          |  |   |            |  
|--------------------------------------------------- |  | ------------------------ | ---------- | - | ------ | - | -------- | -------- |  | - | ---------- | -
|                                                    |  | Statements of Cash Flows |           
|                                                    |  |                          |           
|                                                    |  | As reported              |            |   | Change |   |          | Restated | 
|                                                    |  |                          |            |   |        |   |          |          | 
|Fiscal Year Ended January 5, 2002                   |  |                          |            |   |        |   |          |          |  |   |            |  
|Net cash provided by operating activities           |  | $                        | 6,445,454  |   |        | $ | 332,150  |          |  | $ | 6,777,604  |  
|Net cash used in investing activities               |  |                          | (3,334,006 | ) |        |   | (332,150 | )        |  |   | (3,666,156 | )
|Fiscal Year Ended January 4, 2003                   |  |                          |            |   |        |   |          |          |  |   |            |  
|Net cash provided by (used in) operating activities |  |                          | (502,383   | ) |        |   | 550,000  |          |  |   | 47,617     |  
|Net cash used in investing activities               |  |                          | (6,608,368 | ) |        |   | (550,000 | )        |  |   | (7,158,368 | )
|Fiscal Year Ended January 3, 2004                   |  |                          |            |   |        |   |          |          |  |   |            |  
|Net cash provided by operating activities           |  |                          | 8,801,155  |   |        |   | 113,761  |          |  |   | 8,914,916  |  
|Net cash used in investing activities               |  |                          | (2,287,863 | ) |        |   | (113,761 | )        |  |   | (2,401,624 | )



|   |             
|-- | ------------
|3. | Acquisitions





|                                              |  |   |            |  
|--------------------------------------------- |  | - | ---------- | -
|Inventory                                     |  | $ | 14,892,666 |  
|Accrued vacation liability                    |  |   | (353,000   | )
|Excess of assets acquired over purchase price |  |   | (5,562,568 | )
|                                              |  |   |           
|Total purchase price                          |  | $ | 8,977,098  |  
|                                              |  |   |           





F-14



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)








|   |                       
|-- | ----------------------
|4. | Property and Equipment



|                                               |  |                  |                |  |            |   |            |            |  |   |            | 
|---------------------------------------------- |  | ---------------- | -------------- |  | ---------- | - | ---------- | ---------- |  | - | ---------- | 
|                                               |  | Estimated Useful |                |  | January 4, |   |            | January 3, | 
|                                               |  | Lives            |                |  | 2003       |   |            | 2004       | 
|                                               |  |                  |                |  |            |   |            |            | 
|Furniture, fixtures, and equipment             |  |                  | 3-6 years      |  |            | $ | 8,001,073  |            |  | $ | 9,876,056  | 
|Leasehold improvements                         |  |                  | up to 10 years |  |            |   | 8,102,657  |            |  |   | 9,101,998  | 
|Computer equipment and software                |  |                  | 3 years        |  |            |   | 2,559,968  |            |  |   | 2,616,003  | 
|                                               |  |                  |                |  |            |   |            |            | 
|                                               |  |                  |                |  |            |   | 18,663,698 |            |  |   | 21,594,057 | 
|Less accumulated depreciation and amortization |  |                  |                |  |            |   | 5,482,840  |            |  |   | 8,198,219  | 
|                                               |  |                  |                |  |            |   |            |            | 
|                                               |  |                  |                |  |            | $ | 13,180,858 |            |  | $ | 13,395,838 | 
|                                               |  |                  |                |  |            |   |            |            | 





|   |                 
|-- | ----------------
|5. | Accrued Expenses



|                                   |  |            |           |  |            |   |           | 
|---------------------------------- |  | ---------- | --------- |  | ---------- | - | --------- | 
|                                   |  | January 4, |           |  | January 3, |  
|                                   |  | 2003       |           |  | 2004       |  
|                                   |  |            |           |  |            |  
|Employee compensation and benefits |  | $          | 2,197,046 |  |            | $ | 2,884,291 | 
|Accrued rent                       |  |            | 591,633   |  |            |   | 414,234   | 
|Other                              |  |            | 1,539,854 |  |            |   | 2,688,348 | 
|                                   |  |            |           |  |            |  
|                                   |  | $          | 4,328,533 |  |            | $ | 5,986,873 | 
|                                   |  |            |           |  |            |  



|   |                          
|-- | -------------------------
|6. | Capital Lease Obligations





F-15



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                                                    |      |   |           |           | 
|----------------------------------------------------------------------------------- | ---- | - | --------- | --------- | 
|Fiscal year:                                                                        |      |   |           |          
|                                                                                    | 2004 |   | $         | 1,398,052 | 
|                                                                                    | 2005 |   |           | 935,051   | 
|                                                                                    | 2006 |   |           | 536,507   | 
|                                                                                    | 2007 |   |           | 256,299   | 
|                                                                                    | 2008 |   |           | 75,023    | 
|                                                                                    |      |   |          
|Total minimum lease payments                                                        |      |   | 3,200,932 |          
|Less amount representing interest                                                   |      |   | 906,488   |          
|                                                                                    |      |   |          
|Present value of minimum lease payments (including current
    portion of $947,332) |      | $ | 2,294,444 |          
|                                                                                    |      |   |          



|   |                 
|-- | ----------------
|7. | Operating Leases



|             |            |   |            |            | 
|------------ | ---------- | - | ---------- | ---------- | 
|Fiscal year: |            |   |            |           
|             | 2004       |   | $          | 15,804,333 | 
|             | 2005       |   |            | 14,519,551 | 
|             | 2006       |   |            | 12,110,521 | 
|             | 2007       |   |            | 10,280,145 | 
|             | 2008       |   |            | 9,338,913  | 
|             | Thereafter |   |            | 29,551,213 | 
|             |            |   |           
|             |            | $ | 91,604,676 |           
|             |            |   |           





|   |                           
|-- | --------------------------
|8. | Revolving Credit Agreement





F-16



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)












|   |                  
|-- | -----------------
|9. | Subordinated Debt



|                                                                                                                                                                                                                                                                                                                         |                         |            |           |         |            |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------- | ---------- | --------- | ------- | ---------- | - | ------- | ------- | 
|                                                                                                                                                                                                                                                                                                                         |                         | January 4, |           |         | January 3, |  
|                                                                                                                                                                                                                                                                                                                         |                         | 2003       |           |         | 2004       |  
|                                                                                                                                                                                                                                                                                                                         |                         |            |           |         |            |  
|Subordinated note payable to Class B shareholders,
    principal and interest payable in quarterly installments of
    $30,000 up to $50,000 over the term of the loan, at 8% per
    annum through January 2008. Secured by a $393,000 standby letter
    of credit and personal guarantee of the principal shareholder |                         | $          | 484,811   |         |            | $ | 359,910 |        
|Subordinated note payable, principal and interest, at
    9% per annum, due January 31, 2003                                                                                                                                                                                                                             |                         |            | 95,000    |         |            |   |        |        
|Subordinated note payable to financial institution, due
    March 1, 2004, issued at a discount (Note 14).Interest of $12,500 is payable quarterly. Note accretes to
    the original face amount of $500,000 at January 31, 2003                                                                                        |                         |            | 487,553   |         |            |   | 500,000 |        
|                                                                                                                                                                                                                                                                                                                         |                         |            |           |         |            |  
|                                                                                                                                                                                                                                                                                                                         |                         |            | 1,067,364 |         |            |   | 859,910 |        
|                                                                                                                                                                                                                                                                                                                         | Less current maturities |            |           | 219,901 |            |   |         | 645,501 | 
|                                                                                                                                                                                                                                                                                                                         |                         |            |           |         |            |  
|                                                                                                                                                                                                                                                                                                                         |                         | $          | 847,463   |         |            | $ | 214,409 |        
|                                                                                                                                                                                                                                                                                                                         |                         |            |           |         |            |  



F-17



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|             |      |   |         |         | 
|------------ | ---- | - | ------- | ------- | 
|Fiscal year: |      |   |         |        
|             | 2004 |   | $       | 645,501 | 
|             | 2005 |   |         | 167,799 | 
|             | 2006 |   |         | 46,610  | 
|             |      |   |        
|             |      | $ | 859,910 |        
|             |      |   |        



|    |                                    
|--- | -----------------------------------
|10. | Subordinated Convertible Debentures











|    |                      
|--- | ---------------------
|11. | Employee Benefit Plan





|    |                              
|--- | -----------------------------
|12. | Commitments and Contingencies



F-18



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |                                   
|--- | ----------------------------------
|13. | Pro Forma Income Taxes  Unaudited

Accounting for Income Taxes.






|                                                                                              |                                                                                                 |            |           |          |            |   |          |            |  |   |           |   | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ---------- | --------- | -------- | ---------- | - | -------- | ---------- |  | - | --------- | - | 
|                                                                                              |                                                                                                 | Year Ended |           |          | Year Ended |   |          | Year Ended | 
|                                                                                              |                                                                                                 | January 5, |           |          | January 4, |   |          | January 3, | 
|                                                                                              |                                                                                                 | 2002       |           |          | 2003       |   |          | 2004       | 
|                                                                                              |                                                                                                 |            |           |          |            |   |          |            | 
|Historical income (loss) before cumulative effect of change in
    accounting                 |                                                                                                 | $          | 4,897,376 |          |            | $ | (714,797 | )          |  | $ | 1,629,906 |  
|State income tax expense (benefit)                                                            |                                                                                                 |            | 315,667   |          |            |   | (163,645 | )          |  |   | 67,819    |  
|                                                                                              | Reduction of amortization of excess of acquired net assets over
    cost assuming C corporation |            |           | (404,386 | )          |   |          |           |  |   |           |  | 
|                                                                                              |                                                                                                 |            |           |          |            |   |          |            | 
|Pro forma income (loss) before cumulative effect of change in
    accounting and income taxes |                                                                                                 | $          | 4,808,657 |          |            | $ | (878,442 | )          |  | $ | 1,697,725 |  
|                                                                                              |                                                                                                 |            |           |          |            |   |          |            | 



|                                     |                 |            |           |           |            |   |          |            |   |   |          |          |  
|------------------------------------ | --------------- | ---------- | --------- | --------- | ---------- | - | -------- | ---------- | - | - | -------- | -------- | -
|                                     |                 | January 5, |           |           | January 4, |   |          | January 3, |  
|                                     |                 | 2002       |           |           | 2003       |   |          | 2004       |  
|                                     |                 |            |           |           |            |   |          |            |  
|Current:                             |                 |            |           |           |            |   |          |            |   |   |          |         
|                                     | Federal         |            | $         | 1,420,414 |            |   | $        | (352,771   | ) |   | $        | 801,763  |  
|                                     | State and local |            |           | 167,107   |            |   |          | (41,503    | ) |   |          | 94,325   |  
|                                     |                 |            |           |           |            |   |          |            |  
|Total current                        |                 |            | 1,587,521 |           |            |   | (394,274 | )          |   |   | 896,088  |         
|Deferred:                            |                 |            |           |           |            |   |          |            |   |   |          |         
|                                     | Federal         |            |           | (5,486    | )          |   |          | 82,236     |   |   |          | (213,243 | )
|                                     | State and local |            |           | (645      | )          |   |          | 9,675      |   |   |          | (25,087  | )
|                                     |                 |            |           |           |            |   |          |            |  
|Total deferred (credit)              |                 |            | (6,131    | )         |            |   | 91,911   |            |   |   | (238,330 | )       
|                                     |                 |            |           |           |            |   |          |            |  
|Total income tax (benefit) provision |                 | $          | 1,581,390 |           |            | $ | (302,363 | )          |   | $ | 657,758  |         
|                                     |                 |            |           |           |            |   |          |            |  

F-19



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                          |  |            |       |    |            |  |        |            |  |  |       |  
|--------------------------------------------------------- |  | ---------- | ----- | -- | ---------- |  | ------ | ---------- |  |  | ----- | -
|                                                          |  | January 5, |       |    | January 4, |  |        | January 3, | 
|                                                          |  | 2002       |       |    | 2003       |  |        | 2004       | 
|                                                          |  |            |       |    |            |  |        |            | 
|Statutory federal income tax rate                         |  |            | 34.00 | %  |            |  | (34.00 | )%         |  |  | 34.00 | %
|State and local income taxes, net of federal income taxes |  |            | 4.00  | %  |            |  | (4.00  | )%         |  |  | 4.00  | %
|Permanent differences                                     |  |            | (5.11 | )% |            |  | 3.58   | %          |  |  | 0.74  | %
|Valuation allowance                                       |  |            |      |    |            |  |       |            |  |  |      |  
|                                                          |  |            |       |    |            |  |        |            | 
|Effective tax rate                                        |  |            | 32.89 | %  |            |  | (34.42 | )%         |  |  | 38.74 | %
|                                                          |  |            |       |    |            |  |        |            | 





|                               |                                            |            |           |           |            |   |           |           | 
|------------------------------ | ------------------------------------------ | ---------- | --------- | --------- | ---------- | - | --------- | --------- | 
|                               |                                            | January 4, |           |           | January 3, |  
|                               |                                            | 2003       |           |           | 2004       |  
|                               |                                            |            |           |           |            |  
|Deferred tax assets:           |                                            |            |           |           |            |   |           |          
|                               | Vacation accrual                           |            | $         | 256,367   |            |   | $         | 230,768   | 
|                               | Inventory                                  |            |           | 717,833   |            |   |           | 693,424   | 
|                               | Stock-based and accrued bonus compensation |            |           | 255,732   |            |   |           | 536,834   | 
|                               | Accrued rent                               |            |           | 817,518   |            |   |           | 987,152   | 
|                               | Other                                      |            |           | 34,010    |            |   |           | 21,660    | 
|                               |                                            |            |           |           |            |  
|Total deferred tax assets      |                                            |            | 2,081,460 |           |            |   | 2,469,838 |          
|Deferred tax liabilities:      |                                            |            |           |           |            |   |           |          
|                               | Property and equipment                     |            |           | 1,161,747 |            |   |           | 1,311,795 | 
|                               |                                            |            |           |           |            |  
|Total deferred tax liabilities |                                            |            | 1,161,747 |           |            |   | 1,311,795 |          
|                               |                                            |            |           |           |            |  
|Net deferred tax assets        |                                            | $          | 919,713   |           |            | $ | 1,158,043 |          
|                               |                                            |            |           |           |            |  



|    |                     
|--- | --------------------
|14. | Shareholders Equity







| |              
| | -------------
| | Class A Stock



F-20



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)












| |              
| | -------------
| | Class B Stock









F-21



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                  
| | -----------------
| | Stock Option Plan





|                                 |           |           |         |          |                  |   |      |      | 
|-------------------------------- | --------- | --------- | ------- | -------- | ---------------- | - | ---- | ---- | 
|                                 |           | Number of |         |          | Weighted Average |  
|                                 |           | Options   |         |          | Exercise Price   |  
|                                 |           |           |         |          |                  |  
|Outstanding at December 30, 2000 |           |           | 360,595 |          |                  | $ | 0.01 |     
|                                 | Granted   |           |         |         |                  |   |      |     | 
|                                 | Exercised |           |         |         |                  |   |      |     | 
|                                 | Cancelled |           |         | (116,321 | )                |   |      | 0.01 | 
|                                 |           |           |         |          |                  |  
|Outstanding at January 5, 2002   |           |           | 244,274 |          |                  |   | 0.01 |     
|                                 | Granted   |           |         |         |                  |   |      |     | 
|                                 | Exercised |           |         |         |                  |   |      |     | 
|                                 | Cancelled |           |         |         |                  |   |      |     | 
|                                 |           |           |         |          |                  |  
|Outstanding at January 4, 2003   |           |           | 244,274 |          |                  |   | 0.01 |     
|                                 | Granted   |           |         | 24,718   |                  |   |      | 0.01 | 
|                                 | Exercised |           |         |         |                  |   |      |     | 
|                                 | Cancelled |           |         |         |                  |   |      |     | 
|                                 |           |           |         |          |                  |  
|Outstanding at January 3, 2004   |           |           | 268,992 |          |                  | $ | 0.01 |     
|                                 |           |           |         |          |                  |  





F-22



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                  |  |  |     |  
|--------------------------------- |  |  | --- | -
|Expected life of options in years |  |  | 4   |  
|Risk-free interest rate           |  |  | 4.0 | %
|Expected dividend yield           |  |  | 0.0 | %



Stock Purchase Warrants






F-23



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |                   
|--- | ------------------
|15. | Earnings per Share



|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |         |   |           |           |         | 
|--------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ----------------------- | --------- | --------- | ---------- | - | --------- | ---------- | ------- | - | --------- | --------- | ------- | 
|                                                                                                          |                                                                        | Year Ended              |           |           | Year Ended |   |           | Year Ended |        
|                                                                                                          |                                                                        | January 5,              |           |           | January 4, |   |           | January 3, |        
|                                                                                                          |                                                                        | 2002                    |           |           | 2003       |   |           | 2004       |        
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Numerator:                                                                                                |                                                                        |                         |           |           |            |   |           |            |         |   |           |          
|                                                                                                          | Income (loss) before cumulative effect of change in accounting         |                         | $         | 4,897,376 |            |   | $         | (714,797   | )       |   | $         | 1,629,906 |        
|                                                                                                          | Cumulative effect of change in accounting                              |                         |           |          |            |   |           | 2,774,899  |         |   |           |          |        
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|                                                                                                          | Net income                                                             |                         |           | 4,897,376 |            |   |           | 2,060,102  |         |   |           | 1,629,906 |        
|                                                                                                          | Accretion on redeemable stock                                          |                         |           | (227,834  | )          |   |           | (113,685   | )       |   |           | (343,404  | )      
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Numerator for basic earnings per share                                                                    |                                                                        |                         | 4,669,542 |           |            |   | 1,946,417 |            |         |   | 1,286,502 |          
|Add accretion on redeemable stock                                                                         |                                                                        |                         | 227,834   |           |            |   | 113,685   |            |         |   | 343,404   |          
|Interest expense related to warrants                                                                      |                                                                        |                         | 111,520   |           |            |   | 140,094   |            |         |   | 150,640   |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Numerator for diluted earnings per share                                                                  |                                                                        | $                       | 5,008,896 |           |            | $ | 2,200,196 |            |         | $ | 1,780,546 |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Denominator:                                                                                              |                                                                        |                         |           |           |            |   |           |            |         |   |           |          
|                                                                                                          | Denominator for basic earnings per share  weighted
    average shares |                         |           | 1,426,188 |            |   |           | 1,426,188  |         |   |           | 1,426,188 |        
|                                                                                                          | Effect of dilutive securities:                                         |                         |           |           |            |   |           |            |         |   |           |           |        
|                                                                                                          |                                                                        | Stock options           |           |           | 295,797    |   |           |            | 243,663 |   |           |           | 258,218 | 
|                                                                                                          |                                                                        | Stock purchase warrants |           |           | 76,888     |   |           |            | 76,888  |   |           |           | 76,897  | 
|                                                                                                          |                                                                        | Redeemable securities   |           |           | 538,967    |   |           |            | 538,967 |   |           |           | 538,967 | 
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Denominator for diluted earnings per share  adjusted
    weighted average shares and assumed conversions |                                                                        |                         | 2,337,840 |           |            |   | 2,285,706 |            |         |   | 2,300,270 |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Basic earnings per share                                                                                  |                                                                        |                         |           |           |            |   |           |            |         |   |           |          
|Income (loss) before cumulative effect of change in accounting                                            |                                                                        | $                       | 3.43      |           |            | $ | (0.50     | )          |         | $ | 1.14      |          
|Cumulative effect of change in accounting                                                                 |                                                                        |                         |          |           |            |   | 1.94      |            |         |   |          |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Net income                                                                                                |                                                                        |                         | 3.43      |           |            |   | 1.44      |            |         |   | 1.14      |          
|Accretion on Class A and Class B redeemable stock                                                         |                                                                        |                         | (0.16     | )         |            |   | (0.08     | )          |         |   | (0.24     | )        
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Net income allocable to common shareholders                                                               |                                                                        | $                       | 3.27      |           |            | $ | 1.36      |            |         | $ | 0.90      |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Diluted earnings per share                                                                                |                                                                        |                         |           |           |            |   |           |            |         |   |           |          
|Income (loss) before cumulative effect of change in accounting                                            |                                                                        | $                       | 2.09      |           |            | $ | (0.31     | )          |         | $ | 0.71      |          
|Cumulative effect of change in accounting                                                                 |                                                                        |                         |          |           |            |   | 1.21      |            |         |   |          |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Net income                                                                                                |                                                                        |                         | 2.09      |           |            |   | 0.90      |            |         |   | 0.71      |          
|Interest expense related to Class A stock purchase warrants                                               |                                                                        |                         | 0.05      |           |            |   | 0.06      |            |         |   | 0.06      |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Net income allocable to common shareholders                                                               |                                                                        | $                       | 2.14      |           |            | $ | 0.96      |            |         | $ | 0.77      |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        

F-24



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                               |  |            |       |   |            |   |       |            |  |   |       |  
|-------------------------------------------------------------- |  | ---------- | ----- | - | ---------- | - | ----- | ---------- |  | - | ----- | -
|                                                               |  | Year Ended |       |   | Year Ended |   |       | Year Ended | 
|                                                               |  | January 5, |       |   | January 4, |   |       | January 3, | 
|                                                               |  | 2002       |       |   | 2003       |   |       | 2004       | 
|                                                               |  |            |       |   |            |   |       |            | 
|Basic earnings per share                                       |  |            |       |   |            |   |       |            |  |   |       |  
|Income (loss) before cumulative effect of change in accounting |  | $          | 2.26  |   |            | $ | (0.40 | )          |  | $ | 0.73  |  
|Cumulative effect of change in accounting, net of taxes        |  |            |      |   |            |   | 1.23  |            |  |   |      |  
|                                                               |  |            |       |   |            |   |       |            | 
|Net income                                                     |  |            | 2.26  |   |            |   | 0.83  |            |  |   | 0.73  |  
|Accretion on Class A and Class B redeemable stock              |  |            | (0.16 | ) |            |   | (0.08 | )          |  |   | (0.24 | )
|                                                               |  |            |       |   |            |   |       |            | 
|Net income allocable to common shareholders                    |  | $          | 2.10  |   |            | $ | 0.75  |            |  | $ | 0.49  |  
|                                                               |  |            |       |   |            |   |       |            | 
|Diluted earnings per share                                     |  |            |       |   |            |   |       |            |  |   |       |  
|Income (loss) before cumulative effect of change in accounting |  | $          | 1.38  |   |            | $ | (0.26 | )          |  | $ | 0.47  |  
|Cumulative effect of change in accounting, net of taxes        |  |            |      |   |            |   | 0.80  |            |  |   |      |  
|                                                               |  |            |       |   |            |   |       |            | 
|Net income                                                     |  |            | 1.38  |   |            |   | 0.54  |            |  |   | 0.47  |  
|Interest expense related to Class A stock purchase warrants    |  |            | 0.03  |   |            |   |      |            |  |   |      |  
|                                                               |  |            |       |   |            |   |       |            | 
|Net income allocable to common shareholders(1)(2)              |  | $          | 1.41  |   |            | $ | 0.54  |            |  | $ | 0.47  |  
|                                                               |  |            |       |   |            |   |       |            | 






|    |                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The diluted earnings per share calculation for the year ended
    January 3, 2004 excludes incremental shares of 76,897 and
    interest expense, net of tax, of $93,397 related to the
    outstanding stock purchase warrants because they are
    antidilutive.
|   
|(2) | The diluted earnings per share calculation for the year ended
    January 4, 2003 excludes incremental shares of 76,897 and
    interest expense, net of tax, of $86,858 related to the
    outstanding stock purchase warrants because they are
    antidilutive.

F-25



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |                                    
|--- | -----------------------------------
|16. | Fair Value of Financial Instruments



|                                                                                          |  |                 |           |  |                 |   |           |                 |  |   |            |  |  |   |           | 
|----------------------------------------------------------------------------------------- |  | --------------- | --------- |  | --------------- | - | --------- | --------------- |  | - | ---------- |  |  | - | --------- | 
|                                                                                          |  | January 4, 2003 |           |  | January 3, 2004 |  
|                                                                                          |  |                 |           |  |                 |  
|                                                                                          |  | Carrying Amount |           |  | Fair Value      |   |           | Carrying Amount |  |   | Fair Value | 
|                                                                                          |  |                 |           |  |                 |   |           |                 |  |   |            | 
|Cash and cash equivalents                                                                 |  | $               |          |  |                 | $ |          |                 |  | $ | 574,475    |  |  | $ | 574,475   | 
|Revolving notes payable and long-term subordinated debt,
    including current maturities |  |                 | 8,110,582 |  |                 |   | 8,146,591 |                 |  |   | 3,029,384  |  |  |   | 3,060,885 | 
|Subordinated convertible debentures                                                       |  |                 | 4,900,000 |  |                 |   | 5,742,448 |                 |  |   | 4,500,000  |  |  |   | 4,500,000 | 
|Capital lease obligations, including current maturities                                   |  |                 | 2,117,166 |  |                 |   | 2,400,791 |                 |  |   | 2,294,444  |  |  |   | 3,002,054 | 
|Stock purchase warrants                                                                   |  |                 | 686,860   |  |                 |   | 697,421   |                 |  |   | 837,500    |  |  |   | 843,465   | 





|    |                           
|--- | --------------------------
|17. | Related Party Transactions









|    |                                     
|--- | ------------------------------------
|18. | Quarterly Financial Data  Unaudited



|                  |                                      |       |   |            |        |  |   |            |  |  |        |            |  |  |   |            | 
|----------------- | ------------------------------------ | ----- | - | ---------- | ------ |  | - | ---------- |  |  | ------ | ---------- |  |  | - | ---------- | 
|                  |                                      | First |   |            | Second |  |   | Third      |  |  | Fourth |           
|                  |                                      |       |   |            |        |  |   |            |  |  |        |           
|Fiscal year 2002: |                                      |       |   |            |        |  |   |            |  |  |        |            |  |  |   |           
|                  | Net sales                            |       | $ | 32,059,325 |        |  | $ | 39,405,673 |  |  | $      | 36,259,634 |  |  | $ | 43,423,178 | 
|                  | Gross profit, as previously reported |       |   | 10,075,453 |        |  |   | 11,892,540 |  |  |        | 8,502,972  |  |  |   | 14,665,092 | 
|                  | Gross profit, as restated            |       |   | 10,041,763 |        |  |   | 11,719,538 |  |  |        | 8,396,851  |  |  |   | 14,636,342 | 

F-26



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)


|                  |                                                                                           |       |   |            |        |  |   |            |  |  |        |            |   |  |   |            | 
|----------------- | ----------------------------------------------------------------------------------------- | ----- | - | ---------- | ------ |  | - | ---------- |  |  | ------ | ---------- | - |  | - | ---------- | 
|                  |                                                                                           | First |   |            | Second |  |   | Third      |  |  | Fourth |           
|                  |                                                                                           |       |   |            |        |  |   |            |  |  |        |           
|                  | Income (loss) before cumulative effect of change in
    accounting as previously reported |       |   | 437,625    |        |  |   | 457,565    |  |  |        | (3,096,201 | ) |  |   | 1,710,384  | 
|                  | Income (loss) before cumulative effect of change in
    accounting as restated            |       |   | 434,900    |        |  |   | 318,528    |  |  |        | (3,170,558 | ) |  |   | 1,702,332  | 
|                  | Net income (loss) as previously reported                                                  |       |   | 3,212,524  |        |  |   | 457,565    |  |  |        | (3,096,201 | ) |  |   | 1,710,384  | 
|                  | Net income (loss) as restated                                                             |       |   | 3,209,800  |        |  |   | 318,528    |  |  |        | (3,170,558 | ) |  |   | 1,702,332  | 
|                  | Basic earnings (loss) per share, as previously reported                                   |       |   | 1.99       |        |  |   | 0.35       |  |  |        | (1.88      | ) |  |   | 1.04       | 
|                  | Basic earnings (loss) per share, as restated                                              |       |   | 1.99       |        |  |   | 0.27       |  |  |        | (1.93      | ) |  |   | 1.03       | 
|                  | Diluted earnings (loss) per share, as previously reported                                 |       |   | 1.42       |        |  |   | 0.22       |  |  |        | (1.88      | ) |  |   | 0.76       | 
|                  | Diluted earnings (loss) per share, as restated                                            |       |   | 1.42       |        |  |   | 0.15       |  |  |        | (1.93      | ) |  |   | 0.76       | 
|Fiscal year 2003: |                                                                                           |       |   |            |        |  |   |            |  |  |        |            |   |  |   |           
|                  | Net sales                                                                                 |       | $ | 31,909,958 |        |  | $ | 38,310,685 |  |  | $      | 34,274,081 |   |  | $ | 43,728,829 | 
|                  | Gross profit, as previously reported                                                      |       |   | 7,718,475  |        |  |   | 11,518,141 |  |  |        | 9,348,082  |   |  |   | 16,581,413 | 
|                  | Gross profit, as restated                                                                 |       |   | 7,608,275  |        |  |   | 11,442,752 |  |  |        | 9,278,577  |   |  |   | 16,497,356 | 
|                  | Net income (loss) as previously reported                                                  |       |   | (3,254,643 | )      |  |   | 722,408    |  |  |        | (1,032,935 | ) |  |   | 5,240,064  | 
|                  | Net income (loss), as restated                                                            |       |   | (3,297,586 | )      |  |   | 714,276    |  |  |        | (1,035,772 | ) |  |   | 5,248,988  | 
|                  | Basic earnings (loss) per share, as previously reported                                   |       |   | (2.09      | )      |  |   | 0.50       |  |  |        | (0.73      | ) |  |   | 3.26       | 
|                  | Basic earnings (loss) per share, as restated                                              |       |   | (2.15      | )      |  |   | 0.49       |  |  |        | (0.74      | ) |  |   | 3.30       | 
|                  | Diluted earnings (loss) per share, as previously reported                                 |       |   | (2.09      | )      |  |   | 0.30       |  |  |        | (0.73      | ) |  |   | 2.28       | 
|                  | Diluted earnings (loss) per share, as restated                                            |       |   | (2.15      | )      |  |   | 0.33       |  |  |        | (0.74      | ) |  |   | 2.29       | 



|    |                  
|--- | -----------------
|19. | Subsequent Events



| |                     
| | --------------------
| | Change in Tax Status



F-27



---



##### 



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                        
| | -----------------------
| | Initial Public Offering





| |                
| | ---------------
| | Use of Proceeds





| |                           
| | --------------------------
| | Conversion of Common Stock





| |                                    
| | -----------------------------------
| | Issuance of Stock Purchase Warrants





| |                          
| | -------------------------
| | Issuance of Stock Options





| |                                                  
| | -------------------------------------------------
| | Conversion of Convertible Subordinated Debentures



F-28