##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


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 1, 2005                                                   
|          
|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


o


o þ






DOCUMENTS INCORPORATED BY REFERENCE












---










TABLE OF CONTENTS


|                                                         |  |                                                                                                                      |  |  |    | 
|-------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I                                                  
|Item 1.                                                  |  | Business                                                                                                             |  |  | 3  | 
|Item 2.                                                  |  | Properties                                                                                                           |  |  | 25 | 
|Item 3.                                                  |  | Legal Proceedings                                                                                                    |  |  | 25 | 
|Item 4.                                                  |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |  | 25 | 
|                                                        
|PART II                                                 
|Item 5.                                                  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |  | 25 | 
|Item 6.                                                  |  | Selected Financial Data                                                                                              |  |  | 29 | 
|Item 7.                                                  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |  | 31 | 
|Item 7A.                                                 |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |  | 41 | 
|Item 8.                                                  |  | Financial Statements and Supplementary Data                                                                          |  |  | 41 | 
|Item 9.                                                  |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |  | 42 | 
|Item 9A.                                                 |  | Controls and Procedures                                                                                              |  |  | 42 | 
|Item 9B.                                                 |  | Other Information                                                                                                    |  |  | 43 | 
|                                                        
|PART III                                                
|Item 10.                                                 |  | Directors and Executive Officers of the
    Registrant                                                               |  |  | 43 | 
|Item 11.                                                 |  | Executive Compensation                                                                                               |  |  | 44 | 
|Item 12.                                                 |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |  | 44 | 
|Item 13.                                                 |  | Certain Relationships and Related
    Transactions                                                                   |  |  | 45 | 
|Item 14.                                                 |  | Principal Accountant Fees and Services                                                                               |  |  | 45 | 
|                                                        
|PART IV                                                 
|Item 15.                                                 |  | Exhibits and Financial Statement Schedules                                                                           |  |  | 46 | 
|Form of Nonqualified Option Award Agreement             
|Consent of Independent Registered Public Accounting Firm
|Power of Attorney                                       
|302 Certification of Chief Executive Officer            
|302 Certification of Chief Financial Officer            
|906 Certification of CEO and CFO                        



2



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PART I







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

General












3



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##### Table of Contents



Entry into Agreement for Private Placement








Company History






4



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##### Table of Contents



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
    generally 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 25 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.                                                                                                                                                                                                                          

5



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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
    $790,000 a year in store volume and to contribute approximately
    $110,000 of cash flow per year in their second year of
    operations. We have identified 200 additional locations for new
    format stores and plan to open approximately 25 to 30 new stores
    in fiscal year 2005. Assuming the successful consummation of the                    

6



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Private Placement, we expect to open an additional 10 stores in
    the fall of 2005 and target an additional 35-40 new stores in
    fiscal 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | 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 cash outlay to open a new store
    of $230,000, 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 17 new stores in fiscal 2004, 3 in fiscal 2003 and a
    total of 41 stores in key locations in fiscal year 2002,
    including the 33 former Sam & Libby stores we acquired.
    As of March 28, 2005, we have opened 5 stores in fiscal
    2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



| |                                         
| | ----------------------------------------
| | 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 1, 2005, 73 Bakers
    stores have been opened in or remodeled into the new store
    format. Sales at 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 to $275,000 and the remodeling requires
    the store to be closed for six to seven 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
    remodeled 14 stores in 2004 into the new format. We plan to
    remodel approximately 20 existing stores into the new format
    during fiscal 2005. Assuming the successful consummation of the
    Private Placement, we expect to remodel an additional 5 stores
    into the new format in fiscal 2005. We have identified
    approximately 60 additional stores to be upgraded. Typically,
    our stores are remodeled in connection with lease renewals.
    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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



| |                                                                              
| | -----------------------------------------------------------------------------
| | 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                                                                                                                                                                                                                                                                                                     

7



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| |   |                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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.                                                                                                           
|
| |  | 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 17.4% of our net shoe sales for fiscal year 2004
    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.



8



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| |                 
| | ----------------
| | National Brands.





| |             
| | ------------
| | Accessories.



9



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##### Table of Contents





| |                 
| | ----------------
| | Merchandise Mix.



|                       |       |             |      |       |      |  |      |       |   |  |      |       |   |  |      |       |  
|---------------------- | ----- | ----------- | ---- | ----- | ---- |  | ---- | ----- | - |  | ---- | ----- | - |  | ---- | ----- | -
|                       |       | Fiscal Year |     
|                       |       |             |     
|Category               |       | 2001        |      |       | 2002 |  |      | 2003  |   |  | 2004 |      
|                       |       |             |      |       |      |  |      |       |   |  |      |      
|Private Label Footwear |       |             | 79.6 | %     |      |  | 73.0 | %     |   |  | 75.0 | %     |   |  | 74.0 | %    
|Branded Footwear       |       |             | 12.5 | %     |      |  | 17.2 | %     |   |  | 15.5 | %     |   |  | 15.6 | %    
|Accessories            |       |             | 7.9  | %     |      |  | 9.8  | %     |   |  | 9.5  | %     |   |  | 10.4 | %    
|                       |       |             |      |       |      |  |      |       |   |  |      |      
|                       | 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.





10



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| |           
| | ----------
| | Clearance.





Stores




| |                                 
| | --------------------------------
| | Store Locations and Environment.







|              |  |        |    | 
|------------- |  | ------ | -- | 
|              |  | No.    |   
|              |  | Stores |   
|              |  |        |   
|Alabama       |  |        | 1  | 
|Arizona       |  |        | 4  | 
|Arkansas      |  |        | 1  | 
|California    |  |        | 31 | 
|Colorado      |  |        | 4  | 
|Connecticut   |  |        | 2  | 
|Delaware      |  |        | 1  | 
|Florida       |  |        | 18 | 
|Georgia       |  |        | 15 | 
|Idaho         |  |        | 1  | 
|Illinois      |  |        | 18 | 
|Indiana       |  |        | 5  | 
|Kansas        |  |        | 1  | 
|Louisiana     |  |        | 5  | 
|Maryland      |  |        | 6  | 
|Massachusetts |  |        | 6  | 
|Michigan      |  |        | 9  | 
|Minnesota     |  |        | 2  | 
|Missouri      |  |        | 7  | 

11



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|               |  |        |     |  
|-------------- |  | ------ | --- | -
|               |  | No.    |    
|               |  | Stores |    
|               |  |        |    
|Nebraska       |  |        | 2   |  
|Nevada         |  |        | 3   |  
|New Hampshire  |  |        | 1   |  
|New Jersey     |  |        | 9   |  
|New Mexico     |  |        | 1   |  
|New York       |  |        | 17  |  
|North Carolina |  |        | 2   |  
|Ohio           |  |        | 6   |  
|Oklahoma       |  |        | 2   |  
|Pennsylvania   |  |        | 7   |  
|Rhode Island   |  |        | 1   |  
|South Carolina |  |        | 1   |  
|Texas          |  |        | 19  |  
|Utah           |  |        | 3   |  
|Virginia       |  |        | 4   |  
|Washington     |  |        | 2   |  
|Wisconsin      |  |        | 3   |  
|               |  |        |    
|Total Stores   |  |        | 220 | *
|Total States   |  |        | 36  |  






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





| |                
| | ---------------
| | Store Concepts.





| |       
| | ------
| | Bakers





| |          
| | ---------
| | Wild Pair





12



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|                                |                   |                                                                                                        |     |                                                                                                                                                                                                                                       |   
|------------------------------- | ----------------- | ------------------------------------------------------------------------------------------------------ | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --
|                                |                   | Bakers                                                                                                 |     | Wild Pair                                                                                                                                                                                                                            
|                                |                   |                                                                                                        |     |                                                                                                                                                                                                                                      
|Target customer:
    Key brands |                   | Women  ages 12-29 Skechers®, Guess
    Sport®, Steve Madden®, bebe®, Diesel® and
    Chinese Laundry® |     | Men & women  ages 17-24 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 1, 2005): |                                                                                                        | 192 |                                                                                                                                                                                                                                       | 28
|Approximate average size:       |                   | 2,450 square feet                                                                                      |     | 1,800 square feet                                                                                                                                                                                                                    



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









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







13



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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




14



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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 and Aldos);  
|
| |  | regional chains (such as Cathy Jean and Sheik);                                             

15



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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




Properties






16



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Intellectual Property and Proprietary Rights


tm


Cautionary Statements Regarding Forward-Looking Statements
and Certain Risks








| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                                                        
|
| |  | the successful closing of the Private Placement;                                                                                                                                             
|
| |  | our estimates regarding our capital requirements and needs for
    additional financing;                                                                                                     
|
| |  | the risk factors described below;                                                                                                                                                            
|
| |  | 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.



17



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##### Table of Contents







| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | As a result of our recent restatement of financial
    statements, we may be subject to liability under the securities
    laws.





| |                                                             
| | ------------------------------------------------------------
| | There is relatively limited trading in our common
    stock.





| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | 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.



18



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##### Table of Contents









| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





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



19



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##### Table of Contents







| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;    

20



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| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



21



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##### Table of Contents







| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 shipping,
    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.



22



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##### Table of Contents







| |                                              
| | ---------------------------------------------
| | 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, financing transactions, securities offerings or other
    strategic initiatives.

23



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##### Table of Contents





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





| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | The public sale of our common stock by selling
    shareholders could adversely affect the price of our common
    stock.





| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | 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




24



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##### Table of Contents








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








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








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






PART II.







|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities.

Market Information and Holders






|                 |  |      |       |  |     |   |      | 
|---------------- |  | ---- | ----- |  | --- | - | ---- | 
|2004             |  | High |       |  | Low |  
|                 |  |      |       |  |     |  
|First quarter(1) |  | $    | 11.85 |  |     | $ | 7.51 | 
|Second quarter   |  |      | 11.91 |  |     |   | 9.27 | 
|Third quarter    |  |      | 10.76 |  |     |   | 7.22 | 
|Fourth quarter   |  |      | 10.15 |  |     |   | 7.20 | 






|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Only includes the period from February 5, 2005 through
    April 3, 2004. Our common stock was not quoted on Nasdaq
    prior to our initial public offering.

25



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##### Table of Contents



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       | 
|               |       |              |        
|Fiscal 2004:   |       |              |         |          
|First Quarter  |       | $            | 0       |          
|Second Quarter |       |              | 13,385  |          
|Third Quarter  |       |              | 0       |          
|Fourth Quarter |       |              | 0       |          
|               |       |              |        
|               | Total |              | $       | 13,385    | 
|               |       |              |        





Recent Sales of Unregistered Securities




26



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##### Table of Contents













27



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##### Table of Contents



Use of Proceeds












Securities Authorized for Issuance Under Equity Compensation
Plans




28



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##### Table of Contents



Purchases of Equity Securities by the Issuer and Affiliated
Purchasers









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



|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |             |      |  |   |             |      | 
|--------------------------------------------------------------------------------------------- | ------- | ----------------------- | ----------- | ---- | ---------- | - | ----------- | ---------- |  | - | ----------- | ---- |  | ---------- | ----------- | ---- |  | - | ----------- | ---- | 
|                                                                                              |         | Fiscal Year Ended(6)(7) |            
|                                                                                              |         |                         |            
|                                                                                              |         | December 30,            |             |      | January 5, |   |             | January 4, |  |   | January 3,  |      |  | January 1, |            
|                                                                                              |         | 2000                    |             |      | 2002(1)    |   |             | 2003(4)    |  |   | 2004        |      |  | 2005(5)    |            
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |            
|Net sales                                                                                     |         | $                       | 140,709,517 |      |            | $ | 140,841,929 |            |  | $ | 151,147,810 |      |  | $          | 148,223,553 |      |  | $ | 150,514,663 |     
|Gross profit                                                                                  |         |                         | 38,433,775  |      |            |   | 42,384,857  |            |  |   | 44,794,494  |      |  |            | 44,826,960  |      |  |   | 46,647,798  |     
|Income (loss) before cumulative effect of change in accounting
    and income taxes           |         |                         | 1,583,447   |      |            |   | 4,897,376   |            |  |   | (714,797    | )    |  |            | 1,629,906   |      |  |   | 465,533     |     
|Benefit from income taxes                                                                     |         |                         |            |      |            |   |            |            |  |   |            |      |  |            |            |      |  |   | (962,468    | )   
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |            
|Income (loss) before cumulative effect of change in accounting                                |         |                         | 1,583,447   |      |            |   | 4,897,376   |            |  |   | (714,797    | )    |  |            | 1,629,906   |      |  |   | 1,428,001   |     
|Cumulative effect of change in accounting(2)                                                  |         |                         |            |      |            |   |            |            |  |   | 2,774,899   |      |  |            |            |      |  |   |            |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |            
|Net income(3)                                                                                 |         | $                       | 1,583,447   |      |            | $ | 4,897,376   |            |  | $ | 2,060,102   |      |  | $          | 1,629,906   |      |  | $ | 1,428,001   |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |            
|Net income per common share                                                                   |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |             |      |  |   |             |     
|                                                                                              | Basic   |                         | $           | 1.09 |            |   | $           | 3.27       |  |   | $           | 1.36 |  |            | $           | 0.90 |  |   | $           | 0.31 | 
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |            
|                                                                                              | Diluted |                         | $           | 0.68 |            |   | $           | 2.14       |  |   | $           | 0.96 |  |            | $           | 0.77 |  |   | $           | 0.28 | 
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |            
|Total assets                                                                                  |         | $                       | 19,135,236  |      |            | $ | 22,649,476  |            |  | $ | 30,022,982  |      |  | $          | 29,941,167  |      |  | $ | 49,370,708  |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |            
|Long-term debt, capital lease obligations and redeemable
    securities, less current portion |         | $                       | 3,286,974   |      |            | $ | 4,518,298   |            |  | $ | 9,343,154   |      |  | $          | 7,695,365   |      |  | $ | 679,414     |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |            
|Unaudited pro forma information(3):                                                           |         |                         | (Unaudited  | )    |            |   | (Unaudited  | )          |  |   | (Unaudited  | )    |  |            | (Unaudited  | )    |  |   |             |     
|Income (loss) before cumulative effect of change in accounting
    and income taxes           |         | $                       | 1,344,767   |      |            | $ | 4,808,657   |            |  | $ | (878,442    | )    |  | $          | 1,697,725   |      |  |   |             |     
|Provision for (benefit from) income taxes                                                     |         |                         | 261,258     |      |            |   | 1,581,390   |            |  |   | (302,363    | )    |  |            | 657,758     |      |  |   |             |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |            |            
|Income (loss) before cumulative effect of change in accounting                                |         |                         | 1,083,509   |      |            |   | 3,227,267   |            |  |   | (576,079    | )    |  |            | 1,039,967   |      |  |   |             |     

29



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|                                             |         |                         |           |      |            |   |           |            |  |   |            |      |  |            |           |      |  |  |  |  | 
|-------------------------------------------- | ------- | ----------------------- | --------- | ---- | ---------- | - | --------- | ---------- |  | - | ---------- | ---- |  | ---------- | --------- | ---- |  |  |  |  | 
|                                             |         | Fiscal Year Ended(6)(7) |          
|                                             |         |                         |          
|                                             |         | December 30,            |           |      | January 5, |   |           | January 4, |  |   | January 3, |      |  | January 1, |          
|                                             |         | 2000                    |           |      | 2002(1)    |   |           | 2003(4)    |  |   | 2004       |      |  | 2005(5)    |          
|                                             |         |                         |           |      |            |   |           |            |  |   |            |      |  |            |          
|Cumulative effect of change in accounting(2) |         |                         |          |      |            |   |          |            |  |   | 1,763,934  |      |  |            |          |      |  |  |  | 
|                                             |         |                         |           |      |            |   |           |            |  |   |            |      |  |            |          
|Net income                                   |         | $                       | 1,083,509 |      |            | $ | 3,227,267 |            |  | $ | 1,187,855  |      |  | $          | 1,039,967 |      |  |  |  | 
|                                             |         |                         |           |      |            |   |           |            |  |   |            |      |  |            |          
|Net income per common share                  |         |                         |           |      |            |   |           |            |  |   |            |      |  |            |           |      |  |  |  | 
|                                             | Basic   |                         | $         | 0.73 |            |   | $         | 2.10       |  |   | $          | 0.75 |  |            | $         | 0.49 |  |  |  |  | 
|                                             |         |                         |           |      |            |   |           |            |  |   |            |      |  |            |          
|                                             | Diluted |                         | $         | 0.47 |            |   | $         | 1.41       |  |   | $          | 0.54 |  |            | $         | 0.47 |  |  |  |  | 
|                                             |         |                         |           |      |            |   |           |            |  |   |            |      |  |            |          






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We base our fiscal year on 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(2) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(3) | 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. In accordance with SFAS No. 109,
    we have reflected the net impact of the temporary differences
    between the book and tax bases of our assets and liabilities as
    of the date of conversion as a component of our provision for
    income taxes for fiscal year 2004. This resulted in the
    recognition of a nonrecurring income tax benefit of
    approximately $1.2 million. 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 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.
|   
|(4) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) | On February 10, 2004, we consummated our initial public
    offering with the sale of 2,160,000 shares of common stock.
    On March 12, 2004, we sold an additional
    324,000 shares of common stock in connection with the
    exercise by the underwriters of the full over-allotment option.
    All of the shares of common stock sold to the public were sold
    at a price of $7.75 per share. The aggregate gross proceeds
    from the initial public offering were approximately
    $19.3 million. The net proceeds to us from the offering
    were approximately $15.5 million. As of January 1,
    2005, we have used the net proceeds received from the initial
    public offering to repay $5.7 million on our revolving
    credit agreement, $0.9 million to redeem outstanding
    warrants, $0.9 million to repay subordinated debt and
    $8.0 million for capital expenditures. Immediately prior to
    our initial public offering, we had three classes of common
    stock authorized, Class A common stock, Class B common
    stock and Class C common stock, of which only shares of
    Class A and Class B common stock were outstanding.
    Upon the consummation of our initial public offering, in
    accordance with our then existing articles of incorporation,
    1,693,244.92 shares of Class A common stock and
    271,910 shares of Class B common stock automatically
    converted into an aggregate of 1,965,150 shares of common
    stock on a 1.0 for 1.0 basis, excluding fractional shares.
    Mandatory redemption rights in favor of certain holders of prior
    Class A and Class B common stock were also             

30



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##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | terminated. Prior to the initial public offering, 1,426,188
    Class A shares were classified within shareholders
    equity for accounting purposes and the 267,057 Class A and
    271,910 Class B redeemable shares were classified within
    liabilities for accounting purposes, less fractional shares. In
    addition, upon the consummation of our initial public offering,
    $4.9 million in aggregate principal amount of our
    subordinated convertible debentures due 2007 were automatically
    converted into 653,331 shares of our common stock. Further,
    in connection with the closing of our initial public offering,
    we sold to the representatives of the underwriters and their
    designees warrants to purchase up to an aggregate of
    216,000 shares of common stock at an exercise price equal
    to $12.7875 per share, subject to antidilution adjustments,
    for a purchase price of $0.0001 per warrant. See
    Note 2 in the Notes to the Financial Statements for the
    year ended January 1, 2005.



|    |                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | On March 21, 2005, we filed an amended Annual Report on
    Form 10-K/ A for fiscal 2003 and amended Quarterly Reports
    on Form 10-Q/ A for the first three quarters of fiscal 2004
    which reflected a restatement of our financial statements to
    correct our accounting for landlord allowances and the
    commencement of lease terms.                               
|   
|(7) | Because of the changes in the number of stores for each period,
    our operating results for each period and future periods may not
    be comparable in some significant respects. See
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations for a reconciliation
    and discussion of certain store openings and closings by period.






|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|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 Certain
Risks 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.


Overview










31



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##### Table of Contents













Critical Accounting Policies








| |                        
| | -----------------------
| | Merchandise inventories



32



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##### Table of Contents





| |                                     
| | ------------------------------------
| | Store closing and impairment charges

Accounting for the Disposal of
Long-Lived Assets.




| |                      
| | ---------------------
| | Deferred income taxes



Accounting for Income Taxes,


Fiscal Year






33



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##### Table of Contents



Results of Operations




|                                                       |  |                   |       |   |            |  |       |            |  |  |       |  
|------------------------------------------------------ |  | ----------------- | ----- | - | ---------- |  | ----- | ---------- |  |  | ----- | -
|                                                       |  | Fiscal Year Ended |      
|                                                       |  |                   |      
|                                                       |  | January 4,        |       |   | January 3, |  |       | January 1, | 
|                                                       |  | 2003              |       |   | 2004       |  |       | 2005       | 
|                                                       |  |                   |       |   |            |  |       |            | 
|Net sales                                              |  |                   | 100.0 | % |            |  | 100.0 | %          |  |  | 100.0 | %
|Cost of merchandise sold, occupancy and buying expense |  |                   | 70.4  |   |            |  | 69.8  |            |  |  | 69.0  |  
|                                                       |  |                   |       |   |            |  |       |            | 
|Gross profit                                           |  |                   | 29.6  |   |            |  | 30.2  |            |  |  | 31.0  |  
|Selling expense                                        |  |                   | 20.4  |   |            |  | 20.0  |            |  |  | 20.9  |  
|General and administrative expense                     |  |                   | 7.4   |   |            |  | 7.7   |            |  |  | 9.0   |  
|Loss on disposal of property and equipment             |  |                   | 0.1   |   |            |  | 0.1   |            |  |  | 0.3   |  
|Impairment and disposal of long-lived assets           |  |                   | 0.1   |   |            |  | 0.1   |            |  |  | 0.1   |  
|Write off of deferred offering costs                   |  |                   | 1.1   |   |            |  |      |            |  |  |      |  
|Operating income                                       |  |                   | 0.5   |   |            |  | 2.3   |            |  |  | 0.7   |  
|Other income (expense)                                 |  |                   |      |   |            |  | (0.1  | )          |  |  | 0.2   |  
|Interest expense                                       |  |                   | (1.1  | ) |            |  | (1.1  | )          |  |  | (0.6  | )
|State income tax (expense) benefit                     |  |                   | 0.1   |   |            |  |      |            |  |  |      |  
|Benefit from income taxes                              |  |                   |      |   |            |  |      |            |  |  | (0.7  | )
|Cumulative effect of change in accounting              |  |                   | 1.8   |   |            |  |      |            |  |  |      |  
|                                                       |  |                   |       |   |            |  |       |            | 
|Net income                                             |  |                   | 1.3   | % |            |  | 1.1   | %          |  |  | 1.0   | %
|                                                       |  |                   |       |   |            |  |       |            | 



|                                        |  |                   |     |   |            |  |     |            |  |  |     |  
|--------------------------------------- |  | ----------------- | --- | - | ---------- |  | --- | ---------- |  |  | --- | -
|                                        |  | Fiscal Year Ended |    
|                                        |  |                   |    
|                                        |  | January 4,        |     |   | January 3, |  |     | January 1, | 
|                                        |  | 2003              |     |   | 2004       |  |     | 2005       | 
|                                        |  |                   |     |   |            |  |     |            | 
|Number of stores at beginning of period |  |                   | 202 |   |            |  | 233 |            |  |  | 215 |  
|Stores opened or acquired during period |  |                   | 41  |   |            |  | 3   |            |  |  | 17  |  
|Stores closed during period             |  |                   | (10 | ) |            |  | (21 | )          |  |  | (12 | )
|                                        |  |                   |     |   |            |  |     |            | 
|Number of stores at end of period       |  |                   | 233 |   |            |  | 215 |            |  |  | 220 |  
|                                        |  |                   |     |   |            |  |     |            | 



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Fiscal Year Ended January 1, 2005 Compared to Fiscal
    Year Ended January 3, 2004

Net sales.


Gross profit.


34



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##### Table of Contents



Selling expense.


General and administrative expense.


Loss on disposal of property and equipment.


Interest expense.


Income tax benefit. Accounting for Income Taxes,


Net income.




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

Net sales.


Gross profit.


Selling expense.


35



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##### Table of Contents



General and administrative expense.


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


Net income.


Seasonality and Quarterly Fluctuations




|                        |  |                                   |            |  |        |   |            |       |  |   |            |   |  |   |            | 
|----------------------- |  | --------------------------------- | ---------- |  | ------ | - | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | 
|                        |  | 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  | 

|                        |  |                                   |            |   |        |   |            |       |  |   |            |   |  |   |            | 
|----------------------- |  | --------------------------------- | ---------- | - | ------ | - | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | 
|                        |  | Fiscal Year Ended January 1, 2005 |           
|                        |  |                                   |           
|                        |  | First                             |            |   | Second |   |            | Third |  |   | Fourth     |  
|                        |  |                                   |            |   |        |   |            |       |  |   |            |  
|Net sales               |  | $                                 | 34,305,013 |   |        | $ | 38,904,743 |       |  | $ | 31,589,495 |   |  | $ | 45,715,412 | 
|Gross profit            |  |                                   | 9,741,953  |   |        |   | 12,600,049 |       |  |   | 7,030,918  |   |  |   | 17,274,878 | 
|Operating expenses      |  |                                   | 10,978,954 |   |        |   | 10,988,298 |       |  |   | 11,356,971 |   |  |   | 12,250,179 | 
|Operating income (loss) |  |                                   | (1,237,001 | ) |        |   | 1,611,751  |       |  |   | (4,326,053 | ) |  |   | 5,024,699  | 







36



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##### Table of Contents



Liquidity and Capital Resources
















| |                     
| | --------------------
| | Operating activities







37



---



##### Table of Contents





| |                     
| | --------------------
| | Investing activities









| |                     
| | --------------------
| | Financing activities







38



---



##### Table of Contents













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



39



---



##### Table of Contents













Private Placement




Off-Balance Sheet Arrangements




40



---



##### Table of Contents





Contractual Obligations




|                               |  |                        |             |           |        |   |            |       |  |     |            |  |           |         |            |  |  |   |            | 
|------------------------------ |  | ---------------------- | ----------- | --------- | ------ | - | ---------- | ----- |  | --- | ---------- |  | --------- | ------- | ---------- |  |  | - | ---------- | 
|                               |  | Payments Due in Period |            
|                               |  |                        |            
|                               |  |                        |             | Less Than |        |   | 1-3        |       |  | 3-5 |            |  | More Than |        
|Contractual Obligations        |  | Total                  |             |           | 1 Year |   |            | Years |  |     | Years      |  |           | 5 Years |           
|                               |  |                        |             |           |        |   |            |       |  |     |            |  |           |         |           
|Long-term debt obligations     |  | $                      |            |           |        | $ |           |       |  | $   |            |  |           | $       |           |  |  | $ |           | 
|Capital lease obligations(1)   |  |                        | 1,802,880   |           |        |   | 935,051    |       |  |     | 792,806    |  |           |         | 75,023     |  |  |   |           | 
|Operating lease obligations(2) |  |                        | 138,141,663 |           |        |   | 18,867,539 |       |  |     | 34,608,991 |  |           |         | 30,050,371 |  |  |   | 54,614,762 | 
|Purchase obligations(3)        |  |                        | 23,162,182  |           |        |   | 23,153,819 |       |  |     | 8,363      |  |           |         |           |  |  |   |           | 
|Other long-term liabilities    |  |                        |            |           |        |   |           |       |  |     |           |  |           |         |           |  |  |   |           | 
|Total                          |  | $                      | 163,106,725 |           |        | $ | 42,956,409 |       |  | $   | 35,410,160 |  |           | $       | 30,125,394 |  |  | $ | 54,614,762 | 






|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(1) | Includes payment obligations relating to our point of sale
    hardware and software leases.          
|   
|(2) | Includes minimum payment obligations relating to our store
    leases.                                
|   
|(3) | Includes merchandise on order and payment obligations relating
    to miscellaneous service contracts.

Recent Accounting Pronouncements









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



Impact of Inflation









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



41



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##### Table of Contents








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








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













42



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##### Table of Contents








|         |                   
|-------- | ------------------
|Item 9B. | Other Information.






PART III.







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



Executive Officers of the Registrant




|                         |  |     |    |  |          |                                                                                
|------------------------ |  | --- | -- |  | -------- | -------------------------------------------------------------------------------
|Name                     |  | Age |    |  | Position
|                         |  |     |    |  |         
|Peter A. Edison          |  |     | 49 |  |          | Chairman of the Board and Chief Executive Officer                              
|Michele A. Bergerac      |  |     | 49 |  |          | President and Director                                                         
|Mark D. Ianni            |  |     | 44 |  |          | Executive Vice President  General Merchandise Manager                         
|Lawrence L. Spanley, Jr. |  |     | 58 |  |          | Executive Vice President  Chief Financial Officer,
    Treasurer and Secretary
|Stanley K. Tusman        |  |     | 58 |  |          | Executive Vice President  Inventory and Information
    Management            
|Joseph R. Vander Pluym   |  |     | 53 |  |          | Executive Vice President  Stores                                              

Peter A. Edison


Michele A. Bergerac


Mark D. Ianni


Lawrence L. Spanley, Jr.


43



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##### Table of Contents



Stanley K. Tusman


Joseph R. Vander Pluym






Section 16(a) Beneficial Ownership Reporting
Compliance




Code of Ethics









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








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



44



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##### Table of Contents



Equity Compensation Plan Information






Equity Compensation Plan Table


|                                                          |       |                              |         |         |                      |                         |      |                           |  |  |         |         | 
|--------------------------------------------------------- | ----- | ---------------------------- | ------- | ------- | -------------------- | ----------------------- | ---- | ------------------------- |  |  | ------- | ------- | 
|                                                          |       |                              |         |         |                      | Number of Securities    |     
|                                                          |       |                              |         |         |                      | Remaining Available for |     
|                                                          |       |                              |         |         |                      | Future Issuance Under   |     
|                                                          |       | Number of Securities         |         |         | Weighted-Average     |                         |      | Equity Compensation Plans | 
|                                                          |       | to be Issued Upon            |         |         | Exercise Price of    |                         |      | (Excluding Securities     | 
|                                                          |       | Exercise of Outstanding      |         |         | Outstanding Options, |                         |      | to be Issued Upon         | 
|Plan Category                                             |       | Options, Warrants and Rights |         |         | Warrants and Rights  |                         |      | Exercise)                 | 
|                                                          |       |                              |         |         |                      |                         |      |                           | 
|Equity compensation plans approved by security holders(1) |       |                              | 568,592 |         |                      | $                       | 4.09 |                           |  |  | 300,400 |        
|                                                          |       |                              |         |         |                      |                         |      |                           | 
|                                                          | Total |                              |         | 568,592 |                      |                         | $    | 4.09                      |  |  |         | 300,400 | 
|                                                          |       |                              |         |         |                      |                         |      |                           | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 January 1,
    2005, 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. Of these options, as of
    January 1, 2005, options relating to 4,900 shares have
    been forfeited. The options vest in five equal annual
    installments beginning on the first anniversary of the date of
    grant. As of January 1, 2005, 300,400 shares of common
    stock remain available for future issuance (excluding shares to
    be issued upon exercise of outstanding options). See
    Note 15 to the Financial Statements.








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








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



45



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##### Table of Contents






PART IV







|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules.





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Financial Statements: The financial statements
    commence 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, 10.1.1,
    10.2, 10.5, 10.8, 10.9, 10.13 through 10.16 and 10.20 through
    10.25. The exhibits were filed with the SEC but were not
    included in the printed version of the Annual Report to
    Shareholders.

46



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##### Table of Contents



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         
|                                         |  |                                                                                                                                                   |  |              
|                                        
|/s/ Peter A. Edison(Peter
    A. Edison) |  | Chairman of the Board and Chief Executive Officer, Director
    (Principal Executive Officer)                                                     |  | April 1, 2005
|                                        
|*(Lawrence
    L. Spanley, Jr.)          |  | Executive Vice President, Chief Financial Officer, Treasurer and
    Secretary (Principal Financial Officer and Principal Accounting
    Officer) |  | April 1, 2005
|                                        
|*(Andrew
    N. Baur)                    |  | Director                                                                                                                                          |  | April 1, 2005
|                                        
|*(Michele
    Bergerac)                  |  | Director                                                                                                                                          |  | April 1, 2005
|                                        
|*(Timothy
    F. Finley)                 |  | Director                                                                                                                                          |  | April 1, 2005
|                                        
|*(Harry
    E. Rich)                     |  | Director                                                                                                                                          |  | April 1, 2005
|                                        
|*(Scott
    C. Schnuck)                  |  | Director                                                                                                                                          |  | April 1, 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   



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##### Table of Contents



EXHIBIT INDEX


|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Restated Articles of Incorporation of the Company. (incorporated
    by reference to Exhibit 3.1 to the Companys Annual
    Report on Form 10-K for the fiscal year ended
    January 3, 2004 filed on April 2, 2004 (File
    No. 000-50563)).                                                                                                                                                                                                                                                               
|       
|        | 3  | .2          |  | Restated Bylaws of the Company. (incorporated by reference to
    Exhibit 3.2 to the Companys Annual Report on
    Form  10-K for the fiscal year ended January 3,
    2004 filed on April 2, 2004 (File No. 000-50563)).                                                                                                                                                                                                                                                                                     
|       
|        | 4  | .1          |  | Debenture Purchase Agreement dated April 4, 2002 by and
    among the Company and the persons on the attached signature
    pages (incorporated by reference to Exhibit 4.1 of the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed April 16, 2002).                                                                                                                                                                                                                           
|       
|        | 4  | .1.1        |  | Convertible Debenture Exchange Agreement dated January 2,
    2004 by and among the Company, Special Situations Private Equity
    Fund, L.P., Special Situations Cayman Fund, L.P., Special
    Situations Fund III, L.P., Julian Edison, The Crown
    Advisors, LLC, Crown Investment Partners, L.P. and SWB Holdings,
    Inc. (incorporated by reference to Exhibit 4.1.1 of
    Amendment No. 3 to the Companys Registration
    Statement on Form S-1 (File No. 333-86332), filed
    January 8, 2004).
|       
|        | 4  | .1.2        |  | Form of Subordinated Convertible Debenture dated January 2004
    (included as Exhibit A to Exhibit 4.1.1).                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 4  | .2.1        |  | Second Registration Rights Agreement dated January 2, 2004
    by and among the Company and the selling shareholders named
    therein (incorporated by reference to Exhibit 4.2.1 of
    Amendment No. 3 to the Companys Registration
    Statement on Form S-1 (File No. 333-86332), filed
    January 8, 2004).                                                                                                                                                                                            
|       
|        | 4  | .2.2        |  | Letter to Ryan Beck & Co., Inc. and BB&T Capital
    Markets, as representatives of the underwriters, relating to
    restrictions on transferability of common stock underlying
    convertible debentures, executed by all holders of subordinated
    convertible debentures. (incorporated by reference to
    Exhibit 4.2.2 to the Companys Annual Report on
    Form 10-K for the fiscal year ended January 3, 2004
    filed on April 2, 2004 (File No. 000-50563)).                                   
|       
|        | 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. (incorporated by reference to
    Exhibit 4.3 to the Companys Annual Report on
    Form 10-K for the fiscal year ended January 3, 2004
    filed on April 2, 2004 (File No. 000-50563)).                                                                                                                           
|       
|        | 4  | .4          |  | Amended and Restated Intercreditor and Subordination Agreement
    dated January 2, 2004 by and among Fleet Retail Group Inc.
    (f/k/a Fleet Retail Finance, Inc.), the selling shareholders
    named therein and the Company (incorporated by reference to
    Exhibit 4.4 of Amendment No. 3 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                                                                                                    
|       
|        | 4  | .5          |  | Letter to Ryan Beck & Co., Inc. and BB&T Capital
    Markets, as representatives of the underwriters, relating to
    restrictions on transferability of common stock, executed by all
    directors, officers and shareholders prior to the initial public
    offering. (incorporated by reference to Exhibit 4.5 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended January 3, 2004 filed on April 2, 2004
    (File No. 000-50563)).                                            
|       
|        | 4  | .6          |  | Form of common stock certificate. (incorporated by reference to
    Exhibit 4.6 to the Companys Annual Report on
    Form  10-K for the fiscal year ended January 3,
    2004 filed on April 2, 2004 (File No. 000-50563)).                                                                                                                                                                                                                                                                                   
|       
|        | 4  | .7          |  | Warrants issued by the Company to representatives of the
    underwriters, or their designees. (incorporated by reference to
    Exhibit 4.7 to the Companys Annual Report on
    Form 10-K for the fiscal year ended January 3, 2004
    filed on April 2, 2004 (File No. 000-50563)).                                                                                                                                                                                                                       
|       
|        | 10 | .1          |  | 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 | .1.1        |  | Form of Nonqualified Option Award Agreement under Bakers
    Footwear Group, Inc. 2003 Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        | 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).                                                                                                                                                                                                                                                                                        



---



##### Table of Contents



|        |    |       |             |                                                                                                                                                                                                                                                                                                                                                                                          
|------- | -- | ----- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|       
|        | 10 | .3    |             | 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 | .4    |             | 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 | .5    |             | 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 | .6    |             | 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 | .7    |             | 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 | .8    |             | 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 | .9    |             | 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 | .10   |             | Amended and Restated Loan and Security Agreement dated
    June 11, 2002 by and between Fleet Retail Group, Inc.
    (f/k/a 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).                                    
|       
|        | 10 | .10.1 |             | First Amendment to Amended and Restated Loan and Security
    Agreement dated February 20, 2003 by and between Fleet
    Retail Group, Inc. (f/k/a 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 | .10.2 |             | Amended & Restated Intercreditor Subordination
    Agreement among the Company, Mississippi Valley Capital, LLC and
    Fleet Retail Group Inc. (f/k/a Fleet Retail Finance, Inc.) dated
    April 8, 2003 (included in Exhibit 10.10.1).                                                                                                                                                
|       
|        | 10 | .10.3 |             | Security Agreement in favor of Mississippi Valley Capital, LLC
    dated January 31, 2003, (included in Exhibit 10.10.1).                                                                                                                                                                                                                                                                
|       
|        | 10 | .10.4 |             | Second Amendment to Amended and Restated Loan and Security
    Agreement dated as of November 26, 2003 by and between
    Fleet Retail Group, Inc. (f/k/a 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 | .10.5 |             | Third Amendment and Waiver and Consent Agreement dated
    January 2, 2004 by and between Fleet Retail Group, Inc.
    (f/k/a Fleet Retail Finance, Inc.) and the Company (incorporated
    by reference to Exhibit 10.17.5 of Amendment No. 3 to
    the Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                                 
|       
|        | 10 | .10.6 |             | Limited Guaranty of Collection by Peter Edison in favor of Fleet
    Retail Group, Inc. (f/k/a 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 | .10.7 |             | Fourth Amendment and Waiver and Consent Agreement dated
    January 28, 2004 by and between Fleet Retail Group, Inc.
    (f/k/a Fleet Retail Finance, Inc.) and the Company (incorporated
    by reference to Exhibit 10.17.7 of Amendment No. 5 to
    the Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 30, 2004).                              
|       
|        | 10 | .10.8 |             | Form of Revolving Credit Note in favor of Fleet Retail Group,
    Inc. (f/k/a Fleet Retail Finance, Inc.) dated as of
    January 18, 2000 (included in Exhibit 10.10).                                                                                                                                                                                                                  



---



##### Table of Contents



|        |    |        |             |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | -- | ------ | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        |            
|Number  |    |        | Description
|        |    |        |            
|       
|        | 10 | .10.9  |             | Confirmation and Release of Guaranty Agreement by Peter Edison
    dated as of June 11, 2002 (included in Exhibit 10.10).                                                                                                                                                                                                                                                                                                          
|       
|        | 10 | .10.10 |             | Fifth Amendment to Amended and Restated Loan and Security
    Agreement, dated as of September 1, 2004, by and between
    Fleet Retail Group, Inc. (f/k/a Fleet Retail Finance Inc.) and
    the Company (incorporated by reference to Exhibit 10.17.10
    to the Companys Current Report on Form 8-K, filed
    September 10, 2004).                                                                                           
|       
|        | 10 | .10.11 |             | Termination of Guaranty between Peter A. Edison and Fleet Retail
    Group, Inc. (f/k/a Fleet Retail Finance Inc.) (incorporated by
    reference to Exhibit 10.17.11 to the Companys Current
    Report on Form 8-K, filed September 10, 2004).                                                                                                                                                                                  
|       
|        | 10 | .11    |             | Tax Indemnification Agreement among the Company and its
    shareholders dated January 3, 2004. (incorporated by
    reference to Exhibit 10.18 to the Companys Annual
    Report on Form 10-K for the fiscal year ended
    January 3, 2004 filed on April 2, 2004 (File
    No. 000-50563).                                                                                                                                     
|       
|        | 10 | .12    |             | 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 | .13    |             | 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 | .14    |             | 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 | .15    |             | 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 | .16    |             | 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 | .17    |             | 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 | .18    |             | Financial Advisor Agreement, dated February 4, 2004, by and
    between Ryan Beck & Co., Inc. and the Company.
    (incorporated by reference to Exhibit 10.31 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended January 3, 2004 filed on April 2, 2004
    (File No. 000-50563)).                                                                                                                     
|       
|        | 10 | .19    |             | 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.
    (incorporated by reference to Exhibit 10.32 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended January 3, 2004 filed on April 2, 2004
    (File No. 000-50563)).
|       
|        | 10 | .20    |             | Letter to Peter Edison dated March 1, 2004 outlining the
    2004 bonus levels. (incorporated by reference to
    Exhibit 10.33 to the Companys Annual Report on
    Form 10-K for the fiscal year ended January 3, 2004
    filed on April 2, 2004 (File No. 000-50563)).                                                                                                                                                        
|       
|        | 10 | .21    |             | Letter to Michele Bergerac dated March 1, 2004 outlining
    the 2004 bonus levels. (incorporated by reference to
    Exhibit 10.34 to the Companys Annual Report on
    Form 10-K for the fiscal year ended January 3, 2004
    filed on April 2, 2004 (File No. 000-50563)).                                                                                                                                                    
|       
|        | 10 | .22    |             | Letter to Mark Ianni dated March 1, 2004 outlining the 2004
    bonus levels. (incorporated by reference to Exhibit 10.35
    to the Companys Annual Report on Form 10-K for the
    fiscal year ended January 3, 2004 filed on April 2,
    2004 (File No. 000-50563)).                                                                                                                                                          
|       
|        | 10 | .23    |             | Letter to Stan Tusman dated March 1, 2004 outlining the
    2004 bonus levels. (incorporated by reference to
    Exhibit 10.36 to the Companys Annual Report on
    Form 10-K for the fiscal year ended January 3, 2004
    filed on April 2, 2004 (File No. 000-50563)).                                                                                                                                                         



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##### Table of Contents



|        |    |     |             |                                                                                                                                                                                                                                                                                
|------- | -- | --- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |            
|Number  |    |     | Description
|        |    |     |            
|       
|        | 10 | .24 |             | Letter to Joe Vander Pluym dated March 1, 2004 outlining
    the 2004 bonus levels. (incorporated by reference to
    Exhibit 10.37 to the Companys Annual Report on
    Form 10-K for the fiscal year ended January 3, 2004
    filed on April 2, 2004 (File No. 000-50563)).
|       
|        | 10 | .25 |             | Letter to Larry Spanley dated March 1, 2004 outlining the
    2004 bonus levels. (incorporated by reference to
    Exhibit 10.38 to the Companys Annual Report on
    Form 10-K for the fiscal year ended January 3, 2004
    filed on April 2, 2004 (File No. 000-50563)).   
|       
|        | 11 | .1  |             | Statement regarding computation of per share earnings
    (incorporated by reference from Note 16 of the Financial
    Statements).                                                                                                                                            
|       
|        | 14 | .1  |             | Code of Business Conduct. (incorporated by reference to
    Exhibit 14.1 to the Companys Annual Report on
    Form 10-K for the fiscal year ended January 3, 2004
    filed on April 2, 2004 (File No. 000-50563).                                                            
|       
|        | 23 | .1  |             | Consent of Independent Registered Public Accounting Firm .                                                                                                                                                                                                                     
|       
|        | 24 | .1  |             | Power of Attorney.                                                                                                                                                                                                                                                             
|       
|        | 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).                                                                                                          



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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS


Years Ended January 3, 2004 and January 1, 2005


Contents


|                                                            |  |  |     | 
|----------------------------------------------------------- |  |  | --- | 
|Report of Independent Registered Public
    Accounting Firm |  |  | F-2 | 
|Balance Sheets                                              |  |  | F-3 | 
|Statements of Operations                                    |  |  | F-4 | 
|Statements of Shareholders Equity                          |  |  | F-5 | 
|Statements of Cash Flows                                    |  |  | F-6 | 
|Notes to Financial Statements                               |  |  | F-7 | 

F-1



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##### Table of Contents






Report of Independent Registered Public Accounting Firm
















| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP





| |                   
| | ------------------
| | paragraphs 1 and 2







F-2



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.





BALANCE SHEETS


|                                                          |                                                                                                                        |            |            |            |            |   |            |            | 
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ---------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | 
|                                                          |                                                                                                                        | January 3, |            |            | January 1, |  
|                                                          |                                                                                                                        | 2004       |            |            | 2005       |  
|                                                          |                                                                                                                        |            |            |            |            |  
|ASSETS                                                   
|Current assets:                                           |                                                                                                                        |            |            |            |            |   |            |           
|                                                          | Cash and cash equivalents                                                                                              |            | $          | 574,475    |            |   | $          | 6,675,135  | 
|                                                          | Accounts receivable                                                                                                    |            |            | 1,051,854  |            |   |            | 1,237,450  | 
|                                                          | Other receivables                                                                                                      |            |            | 186,011    |            |   |            | 645,855    | 
|                                                          | Inventories                                                                                                            |            |            | 12,780,256 |            |   |            | 16,790,753 | 
|                                                          | Prepaid expenses and other current assets                                                                              |            |            | 1,029,908  |            |   |            | 1,048,347  | 
|                                                          | Deferred income taxes                                                                                                  |            |            |           |            |   |            | 1,904,963  | 
|                                                          |                                                                                                                        |            |            |            |            |  
|Total current assets                                      |                                                                                                                        |            | 15,622,504 |            |            |   | 28,302,503 |           
|Property and equipment, net                               |                                                                                                                        |            | 13,395,838 |            |            |   | 20,714,211 |           
|Other assets                                              |                                                                                                                        |            | 922,825    |            |            |   | 353,994    |           
|                                                          |                                                                                                                        |            |            |            |            |  
|Total assets                                              |                                                                                                                        | $          | 29,941,167 |            |            | $ | 49,370,708 |           
|                                                          |                                                                                                                        |            |            |            |            |  
|                                                         
|LIABILITIES AND SHAREHOLDERS EQUITY                     
|Current liabilities:                                      |                                                                                                                        |            |            |            |            |   |            |           
|                                                          | Accounts payable                                                                                                       |            | $          | 3,529,652  |            |   | $          | 6,662,044  | 
|                                                          | Accrued expenses                                                                                                       |            |            | 5,986,873  |            |   |            | 7,457,043  | 
|                                                          | Sales tax payable                                                                                                      |            |            | 1,257,294  |            |   |            | 1,422,716  | 
|                                                          | Deferred income                                                                                                        |            |            | 809,122    |            |   |            | 914,814    | 
|                                                          | Revolving credit agreement                                                                                             |            |            | 2,169,474  |            |   |            |           | 
|                                                          | Class A stock purchase warrants                                                                                        |            |            | 837,500    |            |   |            |           | 
|                                                          | Class A stock redemption obligation                                                                                    |            |            | 210,799    |            |   |            |           | 
|                                                          | Current maturities of capital lease obligations                                                                        |            |            | 947,332    |            |   |            | 667,698    | 
|                                                          | Current maturities of long-term subordinated debt                                                                      |            |            | 645,501    |            |   |            |           | 
|                                                          |                                                                                                                        |            |            |            |            |  
|Total current liabilities                                 |                                                                                                                        |            | 16,393,547 |            |            |   | 17,124,315 |           
|Long-term subordinated debt, less current maturities      |                                                                                                                        |            | 214,409    |            |            |   |           |           
|Obligations under capital leases, less current maturities |                                                                                                                        |            | 1,347,112  |            |            |   | 679,414    |           
|Accrued rent liabilities                                  |                                                                                                                        |            | 2,597,770  |            |            |   | 3,686,119  |           
|Deferred income taxes                                     |                                                                                                                        |            |           |            |            |   | 806,323    |           
|Class A stock purchase warrants                           |                                                                                                                        |            |           |            |            |   |           |           
|Class A stock redemption obligation                       |                                                                                                                        |            | 1,178,527  |            |            |   |           |           
|Class B stock redemption obligation                       |                                                                                                                        |            | 455,316    |            |            |   |           |           
|Subordinated convertible debentures                       |                                                                                                                        |            | 4,500,000  |            |            |   |           |           
|Shareholders equity:                                     |                                                                                                                        |            |            |            |            |   |            |           
|                                                          | Preferred stock, $0.0001 par value; 5,000,000 shares
    authorized, no shares outstanding                             |            |            |           |            |   |            |           | 
|                                                          | Common stock, $0.0001 par value; 40,000,000 shares
    authorized, 5,102,481 shares outstanding at January 1,
    2005 |            |            |           |            |   |            | 510        | 
|                                                          | Class A stock, $0.001 par value; 3,000,000 shares
    authorized, 1,426,188 shares outstanding at January 3,
    2004  |            |            | 1,426      |            |   |            |           | 
|                                                          | Class B stock, $0.001 par value; 500,000 shares
    authorized, no shares outstanding                                  |            |            |           |            |   |            |           | 
|                                                          | Class C stock, $0.001 par value; 1,500,000 shares
    authorized, no shares outstanding                                |            |            |           |            |   |            |           | 
|                                                          | Additional paid-in capital                                                                                             |            |            | 3,756,814  |            |   |            | 25,623,630 | 
|                                                          | Retained earnings (accumulated deficit)                                                                                |            |            | (503,754   | )          |   |            | 1,450,397  | 
|                                                          |                                                                                                                        |            |            |            |            |  
|Total shareholders equity                                |                                                                                                                        |            | 3,254,486  |            |            |   | 27,074,537 |           
|                                                          |                                                                                                                        |            |            |            |            |  
|Total liabilities and shareholders equity                |                                                                                                                        | $          | 29,941,167 |            |            | $ | 49,370,708 |           
|                                                          |                                                                                                                        |            |            |            |            |  



F-3



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.





STATEMENTS OF OPERATIONS


|                                                                                    |                                                                                     |            |             |            |            |   |             |            |   |   |             |            |  
|----------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------- | ----------- | ---------- | ---------- | - | ----------- | ---------- | - | - | ----------- | ---------- | -
|                                                                                    |                                                                                     | Year Ended |             |            | Year Ended |   |             | Year Ended |  
|                                                                                    |                                                                                     | January 4, |             |            | January 3, |   |             | January 1, |  
|                                                                                    |                                                                                     | 2003       |             |            | 2004       |   |             | 2005       |  
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Net sales                                                                           |                                                                                     | $          | 151,147,810 |            |            | $ | 148,223,553 |            |   | $ | 150,514,663 |           
|Cost of merchandise sold, occupancy, and buying expenses                            |                                                                                     |            | 106,353,316 |            |            |   | 103,396,593 |            |   |   | 103,866,865 |           
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Gross profit                                                                        |                                                                                     |            | 44,794,494  |            |            |   | 44,826,960  |            |   |   | 46,647,798  |           
|Operating expenses:                                                                 |                                                                                     |            |             |            |            |   |             |            |   |   |             |           
|                                                                                    | Selling                                                                             |            |             | 30,836,538 |            |   |             | 29,599,090 |   |   |             | 31,366,210 |  
|                                                                                    | General and administrative                                                          |            |             | 11,178,931 |            |   |             | 11,454,347 |   |   |             | 13,529,986 |  
|                                                                                    | Loss on disposal of property and equipment                                          |            |             | 95,785     |            |   |             | 188,629    |   |   |             | 475,405    |  
|                                                                                    | Impairment of long-lived assets                                                     |            |             | 120,114    |            |   |             | 127,133    |   |   |             | 202,801    |  
|                                                                                    | Write-off of deferred initial public offering costs                                 |            |             | 1,708,466  |            |   |             |           |   |   |             |           |  
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Operating income                                                                    |                                                                                     |            | 854,660     |            |            |   | 3,457,761   |            |   |   | 1,073,396   |           
|Other income (expense):                                                             |                                                                                     |            |             |            |            |   |             |            |   |   |             |           
|                                                                                    | Interest expense                                                                    |            |             | (1,626,306 | )          |   |             | (1,671,739 | ) |   |             | (936,607   | )
|                                                                                    | State income tax (expense) benefit                                                  |            |             | 163,645    |            |   |             | (67,819    | ) |   |             |           |  
|                                                                                    | Other income (expense), net                                                         |            |             | (106,796   | )          |   |             | (88,297    | ) |   |             | 328,744    |  
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Income (loss) before cumulative effect of change in accounting
    and income taxes |                                                                                     |            | (714,797    | )          |            |   | 1,629,906   |            |   |   | 465,533     |           
|Benefit from income taxes                                                           |                                                                                     |            |            |            |            |   |            |            |   |   | (962,468    | )         
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Income (loss) before cumulative effect of change in accounting                      |                                                                                     |            | (714,797    | )          |            |   | 1,629,906   |            |   |   | 1,428,001   |           
|Cumulative effect of change in accounting                                           |                                                                                     |            | 2,774,899   |            |            |   |            |            |   |   |            |           
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Net income                                                                          |                                                                                     | $          | 2,060,102   |            |            | $ | 1,629,906   |            |   | $ | 1,428,001   |           
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Net income per common share:                                                        |                                                                                     |            |             |            |            |   |             |            |   |   |             |           
|                                                                                    | Basic                                                                               |            | $           | 1.36       |            |   | $           | 0.90       |   |   | $           | 0.31       |  
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|                                                                                    | Diluted                                                                             |            | $           | 0.96       |            |   | $           | 0.77       |   |   | $           | 0.28       |  
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Unaudited pro forma income tax information (Note 13):                               |                                                                                     |            |             |            |            |   |             |            |   |   |             |           
|                                                                                    | Income (loss) before cumulative effect of change in accounting
    and income taxes |            | $           | (878,442   | )          |   | $           | 1,697,725  |   |   |             |            |  
|                                                                                    | Provision for (benefit from) income taxes                                           |            |             | (302,363   | )          |   |             | 657,758    |   |   |             |            |  
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Income (loss) before cumulative effect of change in accounting                      |                                                                                     |            | (576,079    | )          |            |   | 1,039,967   |            |   |   |             |           
|Cumulative effect of change in accounting, net of taxes                             |                                                                                     |            | 1,763,934   |            |            |   |            |            |   |   |             |           
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Net income                                                                          |                                                                                     | $          | 1,187,855   |            |            | $ | 1,039,967   |            |   |   |             |           
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|Net income per common share:                                                        |                                                                                     |            |             |            |            |   |             |            |   |   |             |           
|                                                                                    | Basic                                                                               |            | $           | 0.75       |            |   | $           | 0.49       |   |   |             |            |  
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  
|                                                                                    | Diluted                                                                             |            | $           | 0.54       |            |   | $           | 0.47       |   |   |             |            |  
|                                                                                    |                                                                                     |            |             |            |            |   |             |            |  



F-4



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.





STATEMENTS OF SHAREHOLDERS EQUITY


|                                                                                                                       |                                                                 |              |           |                       |                      |   |            |             |  |  |           |            |   |         |          |        |              |              |            |            |  |   |          |         |  |   |            |            |   |   |            |            |  
|---------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------ | --------- | --------------------- | -------------------- | - | ---------- | ----------- |  |  | --------- | ---------- | - | ------- | -------- | ------ | ------------ | ------------ | ---------- | ---------- |  | - | -------- | ------- |  | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                                                                       |                                                                 |              |           | Class A, Class B, and |                      |   |            |             |  |  |           |            |  
|                                                                                                                       |                                                                 | Common Stock |           |                       | Class C Common Stock |   |            |             |  |  |           |            |   |        
|                                                                                                                       |                                                                 |              |           |                       |                      |   |            |             |  |  |           | Retained   |   |         |         
|                                                                                                                       |                                                                 | Shares       |           |                       |                      |   | Shares     |             |  |  |           | Additional |   |         | Deferred |        |              | Earnings     |            |            | 
|                                                                                                                       |                                                                 | Issued and   |           |                       |                      |   | Issued and |             |  |  |           | Paid-In    |   |         | Stock    |        |              | (Accumulated |            |            | 
|                                                                                                                       |                                                                 | Outstanding  |           |                       | Amount               |   |            | Outstanding |  |  | Amount    |            |   | Capital |          |        | Compensation |              |            | Deficit)   |  |   | Total    |        
|                                                                                                                       |                                                                 |              |           |                       |                      |   |            |             |  |  |           |            |   |         |          |        |              |              |            |            |  |   |          |        
|Balance at January 5, 2002                                                                                             |                                                                 |              |          |                       |                      | $ |           |             |  |  | 1,426,188 |            |   | $       | 1,426    |        |              | $            | 3,608,740  |            |  | $ | (371,286 | )       |  | $ | (1,840,550 | )          |   | $ | 1,398,330  |           
|                                                                                                                       | Distributions to shareholders                                   |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | (1,820,172 | ) |   |            | (1,820,172 | )
|                                                                                                                       | Compensation cost from stock option grants                      |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          | 243,665 |  |   |            |           |   |   |            | 243,665    |  
|                                                                                                                       | Accretion of Class A redeemable stock                           |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | (55,114    | ) |   |            | (55,114    | )
|                                                                                                                       | Accretion of Class B redeemable stock                           |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | (58,575    | ) |   |            | (58,575    | )
|                                                                                                                       | Net income                                                      |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | 2,060,102  |   |   |            | 2,060,102  |  
|                                                                                                                       |                                                                 |              |           |                       |                      |   |            |             |  |  |           |            |   |         |          |        |              |              |            |            |  |   |          |        
|Balance at January 4, 2003                                                                                             |                                                                 |              |          |                       |                      |   |           |             |  |  | 1,426,188 |            |   |         | 1,426    |        |              |              | 3,608,740  |            |  |   | (127,621 | )       |  |   | (1,714,309 | )          |   |   | 1,768,236  |           
|                                                                                                                       | Distributions to shareholders                                   |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | (75,949    | ) |   |            | (75,949    | )
|                                                                                                                       | Compensation cost from stock option grants                      |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            | 148,074    |  |   |          | 127,621 |  |   |            |           |   |   |            | 275,695    |  
|                                                                                                                       | Accretion of Class A redeemable stock                           |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | (126,629   | ) |   |            | (126,629   | )
|                                                                                                                       | Accretion of Class B redeemable stock                           |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | (216,773   | ) |   |            | (216,773   | )
|                                                                                                                       | Net income                                                      |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | 1,629,906  |   |   |            | 1,629,906  |  
|                                                                                                                       |                                                                 |              |           |                       |                      |   |            |             |  |  |           |            |   |         |          |        |              |              |            |            |  |   |          |        
|Balance at January 3, 2004                                                                                             |                                                                 |              |          |                       |                      |   |           |             |  |  | 1,426,188 |            |   |         | 1,426    |        |              |              | 3,756,814  |            |  |   |         |         |  |   | (503,754   | )          |   |   | 3,254,486  |           
|Adjust accumulated deficit and shareholder distributions to
    reflect conversion from S Corporation to C Corporation |                                                                 |              |          |                       |                      |   |           |             |  |  |          |            |   |         |         |        |              |              | (442,140   | )          |  |   |         |         |  |   | 503,754    |            |   |   | 61,614     |           
|                                                                                                                       | Accretion of Class A redeemable stock                           |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | (116,854   | ) |   |            | (116,854   | )
|                                                                                                                       | Accretion of Class B redeemable stock                           |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | 139,250    |   |   |            | 139,250    |  
|                                                                                                                       | Exchange of Class A and B common stock for new common
    stock |              |           | 1,965,150             |                      |   |            | 197         |  |  |           | (1,426,188 | ) |         |          | (1,426 | )            |              |            | 1,823,475  |  |   |          |        |  |   |            |           |   |   |            | 1,822,246  |  
|                                                                                                                       | Shares issued in connection with Initial Public Offering        |              |           | 2,484,000             |                      |   |            | 248         |  |  |           |           |   |         |          |       |              |              |            | 15,530,745 |  |   |          |        |  |   |            |           |   |   |            | 15,530,993 |  
|                                                                                                                       | Conversion of convertible debentures into common stock          |              |           | 653,331               |                      |   |            | 65          |  |  |           |           |   |         |          |       |              |              |            | 4,954,736  |  |   |          |        |  |   |            |           |   |   |            | 4,954,801  |  
|                                                                                                                       | Net income                                                      |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | 1,428,001  |   |   |            | 1,428,001  |  
|                                                                                                                       |                                                                 |              |           |                       |                      |   |            |             |  |  |           |            |   |         |          |        |              |              |            |            |  |   |          |        
|Balance at January 1, 2005                                                                                             |                                                                 |              | 5,102,481 |                       |                      | $ | 510        |             |  |  |          |            |   | $       |         |        |              | $            | 25,623,630 |            |  | $ |         |         |  | $ | 1,450,397  |            |   | $ | 27,074,537 |           
|                                                                                                                       |                                                                 |              |           |                       |                      |   |            |             |  |  |           |            |   |         |          |        |              |              |            |            |  |   |          |        



F-5



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.





STATEMENTS OF CASH FLOWS


|                                                                                      |                                                  |                                           |            |            |            |   |            |            |           |   |             |            |            |  
|------------------------------------------------------------------------------------- | ------------------------------------------------ | ----------------------------------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | --------- | - | ----------- | ---------- | ---------- | -
|                                                                                      |                                                  | Year Ended                                |            |            | Year Ended |   |            | Year Ended |          
|                                                                                      |                                                  | January 4,                                |            |            | January 3, |   |            | January 1, |          
|                                                                                      |                                                  | 2003                                      |            |            | 2004       |   |            | 2005       |          
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          
|Operating activities                                                                  |                                                  |                                           |            |            |            |   |            |            |           |   |             |           
|Net income                                                                            |                                                  | $                                         | 2,060,102  |            |            | $ | 1,629,906  |            |           | $ | 1,428,001   |           
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                  |                                           |            |            |            |   |            |            |           |   |             |           
|                                                                                      | Cumulative effect of change in accounting        |                                           |            | (2,774,899 | )          |   |            |           |           |   |             |           |           
|                                                                                      | Depreciation and amortization                    |                                           |            | 2,595,842  |            |   |            | 2,941,110  |           |   |             | 3,368,834  |           
|                                                                                      | Deferred income taxes                            |                                           |            |           |            |   |            |           |           |   |             | (1,098,640 | )         
|                                                                                      | Amortization of deferred debt issuance costs     |                                           |            | 92,286     |            |   |            | 20,415     |           |   |             |           |           
|                                                                                      | Stock-based compensation expense                 |                                           |            | 243,665    |            |   |            | 275,695    |           |   |             |           |           
|                                                                                      | Beneficial conversion of subordinated debentures |                                           |            |           |            |   |            |           |           |   |             | 163,333    |           
|                                                                                      | Amortization of debt discount                    |                                           |            | 124,160    |            |   |            | 12,447     |           |   |             | 9,820      |           
|                                                                                      | Accretion of stock warrants                      |                                           |            | 140,094    |            |   |            | 150,640    |           |   |             | 12,500     |           
|                                                                                      | Impairment of long-lived assets                  |                                           |            | 120,114    |            |   |            | 127,133    |           |   |             | 202,801    |           
|                                                                                      | Loss on disposal of property and equipment       |                                           |            | 95,785     |            |   |            | 188,629    |           |   |             | 475,405    |           
|                                                                                      | Changes in operating assets and liabilities:     |                                           |            |            |            |   |            |            |           |   |             |            |           
|                                                                                      |                                                  | Accounts receivable and other receivables |            |            | 233,175    |   |            |            | (243,609  | ) |             |            | (645,441   | )
|                                                                                      |                                                  | Inventories                               |            |            | (2,989,356 | ) |            |            | 1,499,346 |   |             |            | (4,010,497 | )
|                                                                                      |                                                  | Prepaid expenses and other current assets |            |            | (48,630    | ) |            |            | (399,124  | ) |             |            | (18,439    | )
|                                                                                      |                                                  | Other assets                              |            |            | (90,853    | ) |            |            | (454,483  | ) |             |            | 510,369    |  
|                                                                                      |                                                  | Accounts payable                          |            |            | (41,264    | ) |            |            | 562,712   |   |             |            | 3,132,392  |  
|                                                                                      |                                                  | Accrued expenses and deferred income      |            |            | (618,421   | ) |            |            | 2,151,187 |   |             |            | 2,156,394  |  
|                                                                                      |                                                  | Accrued rent liabilities                  |            |            | 905,817    |   |            |            | 452,912   |   |             |            | 1,088,349  |  
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          
|Net cash provided by operating activities                                             |                                                  |                                           | 47,617     |            |            |   | 8,914,916  |            |           |   | 6,775,181   |           
|Investing activities                                                                  |                                                  |                                           |            |            |            |   |            |            |           |   |             |           
|Purchase of property and equipment                                                    |                                                  |                                           | (7,160,161 | )          |            |   | (2,404,538 | )          |           |   | (11,409,438 | )         
|Proceeds from sale of property and equipment                                          |                                                  |                                           | 1,793      |            |            |   | 2,914      |            |           |   | 44,025      |           
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          
|Net cash used in investing activities                                                 |                                                  |                                           | (7,158,368 | )          |            |   | (2,401,624 | )          |           |   | (11,365,413 | )         
|Financing activities                                                                  |                                                  |                                           |            |            |            |   |            |            |           |   |             |           
|Net advances (repayments) under revolving notes payable                               |                                                  |                                           | 4,391,942  |            |            |   | (4,873,744 | )          |           |   | (2,169,474  | )         
|Proceeds from issuance of subordinated convertible debentures                         |                                                  |                                           | 4,900,000  |            |            |   |           |            |           |   |            |           
|Net proceeds from Initial Public Offering                                             |                                                  |                                           |           |            |            |   |           |            |           |   | 15,530,993  |           
|Payments to retire stock warrants                                                     |                                                  |                                           |           |            |            |   |           |            |           |   | (850,000    | )         
|Principal payments under capital lease obligations                                    |                                                  |                                           | (591,000   | )          |            |   | (844,223   | )          |           |   | (947,332    | )         
|Principal payments of subordinated debt                                               |                                                  |                                           | (265,321   | )          |            |   | (219,901   | )          |           |   | (859,910    | )         
|Cash distributions to shareholders                                                    |                                                  |                                           | (1,820,172 | )          |            |   | (949       | )          |           |   | (13,385     | )         
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          
|Net cash provided by (used in) financing activities                                   |                                                  |                                           | 6,615,449  |            |            |   | (5,938,817 | )          |           |   | 10,690,892  |           
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          
|Net increase (decrease) in cash and cash equivalents                                  |                                                  |                                           | (495,302   | )          |            |   | 574,475    |            |           |   | 6,100,660   |           
|Cash and cash equivalents at beginning of period                                      |                                                  |                                           | 495,302    |            |            |   |           |            |           |   | 574,475     |           
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          
|Cash and cash equivalents at end of period                                            |                                                  | $                                         |           |            |            | $ | 574,475    |            |           | $ | 6,675,135   |           
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          
|Supplemental disclosures of cash flow information                                     |                                                  |                                           |            |            |            |   |            |            |           |   |             |           
|Cash paid for state income taxes                                                      |                                                  | $                                         | 106,685    |            |            | $ | 31,126     |            |           | $ | 142,735     |           
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          
|Cash paid for interest                                                                |                                                  | $                                         | 1,019,404  |            |            | $ | 1,650,270  |            |           | $ | 776,580     |           
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          
|Noncash investing and financing transactions                                          |                                                  |                                           |            |            |            |   |            |            |           |   |             |           
|Capital lease obligations                                                             |                                                  | $                                         | 718,804    |            |            | $ | 1,021,500  |            |           | $ |            |           
|                                                                                      |                                                  |                                           |            |            |            |   |            |            |          



F-6



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS


January 1, 2005




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



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







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







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





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





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





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



F-7



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##### Table of Contents



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



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






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

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




|                                                                                                                  |             |            |           |      |            |   |           |            |  |   |           |      | 
|----------------------------------------------------------------------------------------------------------------- | ----------- | ---------- | --------- | ---- | ---------- | - | --------- | ---------- |  | - | --------- | ---- | 
|                                                                                                                  |             | Year Ended |           |      | Year Ended |   |           | Year Ended | 
|                                                                                                                  |             | January 4, |           |      | January 3, |   |           | January 1, | 
|                                                                                                                  |             | 2003       |           |      | 2004       |   |           | 2005       | 
|                                                                                                                  |             |            |           |      |            |   |           |            | 
|Net income as reported                                                                                            |             | $          | 2,060,102 |      |            | $ | 1,629,906 |            |  | $ | 1,428,001 |     
|Add: Stock based compensation expense included in net income as
    reported                                      |             |            | 243,665   |      |            |   | 275,695   |            |  |   |          |     
|Deduct: Stock based compensation expense determined under fair
    value method, net of related income tax effect |             |            | (243,665  | )    |            |   | (275,695  | )          |  |   | (366,030  | )   
|                                                                                                                  |             |            |           |      |            |   |           |            | 
|Pro forma net income                                                                                              |             | $          | 2,060,102 |      |            | $ | 1,629,906 |            |  | $ | 1,061,971 |     
|                                                                                                                  |             |            |           |      |            |   |           |            | 
|Basic earnings per share:                                                                                         |             |            |           |      |            |   |           |            |  |   |           |     
|                                                                                                                  | As reported |            | $         | 1.36 |            |   | $         | 0.90       |  |   | $         | 0.31 | 
|                                                                                                                  | Pro forma   |            | $         | 1.36 |            |   | $         | 0.90       |  |   | $         | 0.23 | 
|Diluted earnings per share:                                                                                       |             |            |           |      |            |   |           |            |  |   |           |     
|                                                                                                                  | As reported |            | $         | 0.96 |            |   | $         | 0.77       |  |   | $         | 0.28 | 
|                                                                                                                  | Pro forma   |            | $         | 0.96 |            |   | $         | 0.77       |  |   | $         | 0.21 | 







F-9



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)


Marketing Expense




Offering Costs






Earnings per Share




Income Taxes






Accounting for Income
Taxes


Distributions to Shareholders




F-10



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




Store Lease Acquisitions




Deferred Income






Business Segment




Shipping and Handling Costs




Goodwill




F-11



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




Recent Accounting Pronouncements






|   |                        
|-- | -----------------------
|2. | Initial Public Offering











F-12



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                       
|-- | ----------------------
|3. | Property and Equipment



|                                               |  |                  |                |  |            |   |            |            |  |   |            | 
|---------------------------------------------- |  | ---------------- | -------------- |  | ---------- | - | ---------- | ---------- |  | - | ---------- | 
|                                               |  | Estimated Useful |                |  | January 3, |   |            | January 1, | 
|                                               |  | Lives            |                |  | 2004       |   |            | 2005       | 
|                                               |  |                  |                |  |            |   |            |            | 
|Furniture, fixtures, and equipment             |  |                  | 3-6 years      |  |            | $ | 9,876,056  |            |  | $ | 12,903,343 | 
|Leasehold improvements                         |  |                  | up to 10 years |  |            |   | 8,711,747  |            |  |   | 14,266,954 | 
|Computer equipment and software                |  |                  | 3 years        |  |            |   | 2,616,003  |            |  |   | 3,006,633  | 
|Construction in progress                       |  |                  |                |  |            |   | 390,251    |            |  |   | 1,683,114  | 
|                                               |  |                  |                |  |            |   |            |            | 
|                                               |  |                  |                |  |            |   | 21,594,057 |            |  |   | 31,860,044 | 
|Less accumulated depreciation and amortization |  |                  |                |  |            |   | 8,198,219  |            |  |   | 11,145,833 | 
|                                               |  |                  |                |  |            |   |            |            | 
|                                               |  |                  |                |  |            | $ | 13,395,838 |            |  | $ | 20,714,211 | 
|                                               |  |                  |                |  |            |   |            |            | 





|   |                 
|-- | ----------------
|4. | Accrued Expenses



|                                   |  |            |           |  |            |   |           | 
|---------------------------------- |  | ---------- | --------- |  | ---------- | - | --------- | 
|                                   |  | January 3, |           |  | January 1, |  
|                                   |  | 2004       |           |  | 2005       |  
|                                   |  |            |           |  |            |  
|Employee compensation and benefits |  | $          | 2,884,291 |  |            | $ | 2,716,204 | 
|Accrued rent                       |  |            | 414,234   |  |            |   | 245,346   | 
|Other                              |  |            | 2,688,348 |  |            |   | 4,495,493 | 
|                                   |  |            |           |  |            |  
|                                   |  | $          | 5,986,873 |  |            | $ | 7,457,043 | 
|                                   |  |            |           |  |            |  



|   |                          
|-- | -------------------------
|5. | Capital Lease Obligations







|                                                                                    |      |   |           |         | 
|----------------------------------------------------------------------------------- | ---- | - | --------- | ------- | 
|Fiscal year:                                                                        |      |   |           |        
|                                                                                    | 2005 |   | $         | 935,051 | 
|                                                                                    | 2006 |   |           | 536,507 | 
|                                                                                    | 2007 |   |           | 256,299 | 
|                                                                                    | 2008 |   |           | 75,023  | 
|                                                                                    |      |   |          
|Total minimum lease payments                                                        |      |   | 1,802,880 |        
|Less amount representing interest                                                   |      |   | 455,768   |        
|                                                                                    |      |   |          
|Present value of minimum lease payments (including current
    portion of $667,698) |      | $ | 1,347,112 |        
|                                                                                    |      |   |          

F-13



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                 
|-- | ----------------
|6. | Operating Leases



|             |            |   |             |            | 
|------------ | ---------- | - | ----------- | ---------- | 
|Fiscal year: |            |   |             |           
|             | 2005       |   |             | 18,867,539 | 
|             | 2006       |   |             | 18,064,804 | 
|             | 2007       |   |             | 16,544,187 | 
|             | 2008       |   |             | 15,597,201 | 
|             | 2009       |   |             | 14,453,170 | 
|             | Thereafter |   |             | 54,614,762 | 
|             |            |   |            
|             |            | $ | 138,141,663 |           
|             |            |   |            





|   |                           
|-- | --------------------------
|7. | Revolving Credit Agreement









F-14



---



##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                  
|-- | -----------------
|8. | Subordinated Debt



|                                                                                                                                                                                                                                                                                                                                                                 |                         |            |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ---------- | ------- | ------- | 
|                                                                                                                                                                                                                                                                                                                                                                 |                         | January 3, |        
|                                                                                                                                                                                                                                                                                                                                                                 |                         | 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.
    This note was repaid in March 2004 |                         | $          | 359,910 |        
|Subordinated note payable, principal and interest, at
    9% per annum, due January 31, 2003 Interest of $12,500
    is payable quarterly. Note accretes to the original face amount
    of $500,000 at January 31, 2003. This note was repaid in
    March 2004                                                                                                 |                         |            | 500,000 |        
|                                                                                                                                                                                                                                                                                                                                                                 |                         |            |        
|                                                                                                                                                                                                                                                                                                                                                                 |                         |            | 859,910 |        
|                                                                                                                                                                                                                                                                                                                                                                 | Less current maturities |            |         | 645,501 | 
|                                                                                                                                                                                                                                                                                                                                                                 |                         |            |        
|                                                                                                                                                                                                                                                                                                                                                                 |                         | $          | 214,409 |        
|                                                                                                                                                                                                                                                                                                                                                                 |                         |            |        





|   |                                    
|-- | -----------------------------------
|9. | Subordinated Convertible Debentures









|    |                      
|--- | ---------------------
|10. | Employee Benefit Plan



F-15



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|    |                              
|--- | -----------------------------
|11. | Commitments and Contingencies





|    |             
|--- | ------------
|12. | Income Taxes







|                                |                 |            |            |          |  
|------------------------------- | --------------- | ---------- | ---------- | -------- | -
|                                |                 | Year Ended |           
|                                |                 | January 1, |           
|                                |                 | 2005       |           
|                                |                 |            |           
|Current:                        |                 |            |            |         
|                                | Federal         |            | $          |         |  
|                                | State and local |            |            | 136,172  |  
|                                |                 |            |           
|Total current                   |                 |            | 136,172    |         
|                                |                 |            |           
|Deferred:                       |                 |            |            |         
|                                | Federal         |            |            | (868,365 | )
|                                | State and local |            |            | (230,275 | )
|                                |                 |            |           
|Total deferred (credit)         |                 |            | (1,098,640 | )       
|                                |                 |            |           
|Total benefit from income taxes |                 | $          | (962,468   | )       
|                                |                 |            |           

F-16



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                          |  |            |            |  
|--------------------------------------------------------- |  | ---------- | ---------- | -
|                                                          |  | Year Ended |           
|                                                          |  | January 1, |           
|                                                          |  | 2005       |           
|                                                          |  |            |           
|Federal income tax at 34% Statutory rate                  |  | $          | 158,281    |  
|State and local income taxes, net of federal income taxes |  |            | 14,787     |  
|Permanent differences                                     |  |            | 22,507     |  
|Conversion from S Corporation to C Corporation status     |  |            | (1,158,043 | )
|                                                          |  |            |           
|Total benefit from income taxes                           |  | $          | (962,468   | )
|                                                          |  |            |           







|                               |                                 |            |           |           | 
|------------------------------ | ------------------------------- | ---------- | --------- | --------- | 
|                               |                                 | January 1, |          
|                               |                                 | 2005       |          
|                               |                                 |            |          
|Deferred tax assets:           |                                 |            |           |          
|                               | Net operating loss carryforward |            | $         | 732,028   | 
|                               | Vacation accrual                |            |           | 353,950   | 
|                               | Inventory                       |            |           | 818,985   | 
|                               | Stock-based compensation        |            |           | 426,634   | 
|                               | Accrued rent                    |            |           | 1,413,911 | 
|                               |                                 |            |          
|Total deferred tax assets      |                                 |            | 3,745,508 |          
|                               |                                 |            |          
|Deferred tax liabilities:      |                                 |            |           |          
|                               | Property and equipment          |            |           | 2,646,868 | 
|                               |                                 |            |          
|Total deferred tax liabilities |                                 |            | 2,646,868 |          
|                               |                                 |            |          
|Net deferred tax assets        |                                 | $          | 1,098,640 |          
|                               |                                 |            |          

13.     Pro Forma Income
Taxes  Unaudited






F-17



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|                                                                                              |  |            |          |   |            |   |           | 
|--------------------------------------------------------------------------------------------- |  | ---------- | -------- | - | ---------- | - | --------- | 
|                                                                                              |  | Year Ended |          |   | Year Ended |  
|                                                                                              |  | January 4, |          |   | January 3, |  
|                                                                                              |  | 2003       |          |   | 2004       |  
|                                                                                              |  |            |          |   |            |  
|Historical income (loss) before cumulative effect of change in
    accounting                 |  | $          | (714,797 | ) |            | $ | 1,629,906 | 
|State income tax expense (benefit)                                                            |  |            | (163,645 | ) |            |   | 67,819    | 
|                                                                                              |  |            |          |   |            |  
|Pro forma income (loss) before cumulative effect of change in
    accounting and income taxes |  | $          | (878,442 | ) |            | $ | 1,697,725 | 
|                                                                                              |  |            |          |   |            |  



|                                     |                 |            |          |          |            |   |          |          |  
|------------------------------------ | --------------- | ---------- | -------- | -------- | ---------- | - | -------- | -------- | -
|                                     |                 | Year Ended |          |          | Year Ended |  
|                                     |                 | January 4, |          |          | January 3, |  
|                                     |                 | 2003       |          |          | 2004       |  
|                                     |                 |            |          |          |            |  
|Current:                             |                 |            |          |          |            |   |          |         
|                                     | Federal         |            | $        | (352,771 | )          |   | $        | 801,763  |  
|State and local                      |                 |            | (41,503  | )        |            |   | 94,325   |         
|                                     |                 |            |          |          |            |  
|Total current                        |                 |            | (394,274 | )        |            |   | 896,088  |         
|Deferred:                            |                 |            |          |          |            |   |          |         
|                                     | Federal         |            |          | 82,236   |            |   |          | (213,243 | )
|                                     | State and local |            |          | 9,675    |            |   |          | (25,087  | )
|                                     |                 |            |          |          |            |  
|Total deferred (credit)              |                 |            | 91,911   |          |            |   | (238,330 | )       
|                                     |                 |            |          |          |            |  
|Total income tax (benefit) provision |                 | $          | (302,363 | )        |            | $ | 657,758  |         
|                                     |                 |            |          |          |            |  



|                                                          |  |            |        |    |            |  |       |  
|--------------------------------------------------------- |  | ---------- | ------ | -- | ---------- |  | ----- | -
|                                                          |  | Year Ended |        |    | Year Ended | 
|                                                          |  | January 4, |        |    | January 3, | 
|                                                          |  | 2003       |        |    | 2004       | 
|                                                          |  |            |        |    |            | 
|Statutory federal income tax rate                         |  |            | (34.00 | )% |            |  | 34.00 | %
|State and local income taxes, net of federal income taxes |  |            | (4.00  | )% |            |  | 4.00  | %
|Permanent differences                                     |  |            | 3.58   | %  |            |  | 0.74  | %
|                                                          |  |            |        |    |            | 
|Effective tax rate                                        |  |            | (34.42 | )% |            |  | 38.74 | %
|                                                          |  |            |        |    |            | 



F-18



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                               |                                            |            |           |           | 
|------------------------------ | ------------------------------------------ | ---------- | --------- | --------- | 
|                               |                                            | January 3, |          
|                               |                                            | 2004       |          
|                               |                                            |            |          
|Deferred tax assets:           |                                            |            |           |          
|                               | Vacation accrual                           |            | $         | 230,768   | 
|                               | Inventory                                  |            |           | 693,424   | 
|                               | Stock-based and accrued bonus compensation |            |           | 536,834   | 
|                               | Accrued rent                               |            |           | 987,152   | 
|                               | Other                                      |            |           | 21,660    | 
|                               |                                            |            |          
|Total deferred tax assets      |                                            |            | 2,469,838 |          
|                               |                                            |            |          
|Deferred tax liabilities:      |                                            |            |           |          
|                               | Property and equipment                     |            |           | 1,311,795 | 
|                               |                                            |            |          
|Total deferred tax liabilities |                                            |            | 1,311,795 |          
|                               |                                            |            |          
|Net deferred tax assets        |                                            | $          | 1,158,043 |          
|                               |                                            |            |          



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





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







F-19



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






Class B Stock










Stock Purchase Warrants










F-20



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |                         
|--- | ------------------------
|15. | Stock-Based Compensation







|                           |           |             |         |         |                  |   |      |           |  |  |                  |        |  |   |      |      | 
|-------------------------- | --------- | ----------- | ------- | ------- | ---------------- | - | ---- | --------- |  |  | ---------------- | ------ |  | - | ---- | ---- | 
|                           |           | Outstanding |         |         | Exercisable      |  
|                           |           |             |         |         |                  |  
|                           |           | Number of   |         |         | Weighted Average |   |      | Number of |  |  | Weighted Average |       
|                           |           | Options     |         |         | Exercise Price   |   |      | Options   |  |  | Exercise Price   |       
|                           |           |             |         |         |                  |   |      |           |  |  |                  |       
|Balance at January 5, 2002 |           |             | 244,274 |         |                  | $ | 0.01 |           |  |  | 122,138          |        |  | $ | 0.01 |     
|                           | Granted   |             |         |        |                  |   |      |          |  |  |                  |       |  |   |      |     | 
|                           | Vested    |             |         |        |                  |   |      |          |  |  |                  | 61,068 |  |   |      | 0.01 | 
|                           | Exercised |             |         |        |                  |   |      |          |  |  |                  |       |  |   |      |     | 
|                           | Forfeited |             |         |        |                  |   |      |          |  |  |                  |       |  |   |      |     | 
|                           |           |             |         |         |                  |   |      |           |  |  |                  |       
|Balance at January 4, 2003 |           |             | 244,274 |         |                  |   | 0.01 |           |  |  | 183,206          |        |  |   | 0.01 |     
|                           | Granted   |             |         | 24,718  |                  |   |      | 0.01      |  |  |                  | 24,718 |  |   |      | 0.01 | 
|                           | Vested    |             |         |        |                  |   |      |          |  |  |                  | 61,068 |  |   |      | 0.01 | 
|                           | Exercised |             |         |        |                  |   |      |          |  |  |                  |       |  |   |      |     | 
|                           | Forfeited |             |         |        |                  |   |      |          |  |  |                  |       |  |   |      |     | 
|                           |           |             |         |         |                  |   |      |           |  |  |                  |       
|Balance at January 3, 2004 |           |             | 268,992 |         |                  |   | 0.01 |           |  |  | 268,992          |        |  |   | 0.01 |     
|                           | Granted   |             |         | 304,500 |                  |   |      | 7.75      |  |  |                  |       |  |   |      |     | 
|                           | Vested    |             |         |        |                  |   |      |          |  |  |                  | 1,000  |  |   |      | 7.75 | 
|                           | Exercised |             |         |        |                  |   |      |          |  |  |                  |       |  |   |      |     | 
|                           | Forfeited |             |         | (4,900  | )                |   |      | 7.75      |  |  |                  |       |  |   |      |     | 
|                           |           |             |         |         |                  |   |      |           |  |  |                  |       
|Balance at January 1, 2005 |           |             | 568,592 |         |                  |   | 4.09 |           |  |  | 269,992          |        |  |   | 0.04 |     
|                           |           |             |         |         |                  |   |      |           |  |  |                  |       



F-21



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|    |                   
|--- | ------------------
|16. | Earnings per Share



|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |         |   |           |           |         | 
|--------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ----------------------- | --------- | --------- | ---------- | - | --------- | ---------- | ------- | - | --------- | --------- | ------- | 
|                                                                                                          |                                                                        | Year Ended              |           |           | Year Ended |   |           | Year Ended |        
|                                                                                                          |                                                                        | January 4,              |           |           | January 3, |   |           | January 1, |        
|                                                                                                          |                                                                        | 2003                    |           |           | 2004       |   |           | 2005       |        
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Numerator:                                                                                                |                                                                        |                         |           |           |            |   |           |            |         |   |           |          
|                                                                                                          | Income (loss) before cumulative effect of change in accounting         |                         | $         | (714,797  | )          |   | $         | 1,629,906  |         |   | $         | 1,428,001 |        
|                                                                                                          | Cumulative effect of change in accounting                              |                         |           | 2,774,899 |            |   |           |           |         |   |           |          |        
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|                                                                                                          | Net income                                                             |                         |           | 2,060,102 |            |   |           | 1,629,906  |         |   |           | 1,428,001 |        
|                                                                                                          | Accretion on redeemable stock                                          |                         |           | (113,685  | )          |   |           | (343,404   | )       |   |           | 22,396    |        
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Numerator for basic earnings per share                                                                    |                                                                        |                         | 1,946,417 |           |            |   | 1,286,502 |            |         |   | 1,450,397 |          
|Add accretion on redeemable stock                                                                         |                                                                        |                         | 113,685   |           |            |   | 343,404   |            |         |   | (22,396   | )        
|Interest expense related to convertible debentures                                                        |                                                                        |                         |          |           |            |   |          |            |         |   | 26,387    |          
|Interest expense related to warrants                                                                      |                                                                        |                         | 140,094   |           |            |   | 150,640   |            |         |   | 7,750     |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Numerator for diluted earnings per share                                                                  |                                                                        | $                       | 2,200,196 |           |            | $ | 1,780,546 |            |         | $ | 1,462,138 |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Denominator:                                                                                              |                                                                        |                         |           |           |            |   |           |            |         |   |           |          
|                                                                                                          | Denominator for basic earnings per share  weighted
    average shares |                         |           | 1,426,188 |            |   |           | 1,426,188  |         |   |           | 4,690,527 |        
|                                                                                                          | Effect of dilutive securities:                                         |                         |           |           |            |   |           |            |         |   |           |           |        
|                                                                                                          |                                                                        | Stock options           |           |           | 243,663    |   |           |            | 258,218 |   |           |           | 319,778 | 
|                                                                                                          |                                                                        | Stock purchase warrants |           |           | 76,888     |   |           |            | 76,897  |   |           |           | 12,254  | 
|                                                                                                          |                                                                        | Convertible debentures  |           |           |           |   |           |            |        |   |           |           | 68,205  | 
|                                                                                                          |                                                                        | Redeemable securities   |           |           | 538,967    |   |           |            | 538,967 |   |           |           | 56,837  | 
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Denominator for diluted earnings per share  adjusted
    weighted average shares and assumed conversions |                                                                        |                         | 2,285,706 |           |            |   | 2,300,270 |            |         |   | 5,147,601 |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Basic earnings per share                                                                                  |                                                                        |                         |           |           |            |   |           |            |         |   |           |          
|Income (loss) before cumulative effect of change in accounting                                            |                                                                        | $                       | (0.50     | )         |            | $ | 1.14      |            |         | $ | 0.30      |          
|Cumulative effect of change in accounting                                                                 |                                                                        |                         | 1.94      |           |            |   |          |            |         |   |          |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Net income                                                                                                |                                                                        |                         | 1.44      |           |            |   | 1.14      |            |         |   | 0.30      |          
|Accretion on Class A and Class B redeemable stock                                                         |                                                                        |                         | (0.08     | )         |            |   | (0.24     | )          |         |   | 0.01      |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        
|Net income allocable to common shareholders                                                               |                                                                        | $                       | 1.36      |           |            | $ | 0.90      |            |         | $ | 0.31      |          
|                                                                                                          |                                                                        |                         |           |           |            |   |           |            |        

F-22



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)


|                                                                                           |  |            |       |   |            |   |      |            |  |   |      | 
|------------------------------------------------------------------------------------------ |  | ---------- | ----- | - | ---------- | - | ---- | ---------- |  | - | ---- | 
|                                                                                           |  | Year Ended |       |   | Year Ended |   |      | Year Ended | 
|                                                                                           |  | January 4, |       |   | January 3, |   |      | January 1, | 
|                                                                                           |  | 2003       |       |   | 2004       |   |      | 2005       | 
|                                                                                           |  |            |       |   |            |   |      |            | 
|Diluted earnings per share                                                                 |  |            |       |   |            |   |      |            |  |   |      | 
|Income (loss) before cumulative effect of change in accounting                             |  | $          | (0.31 | ) |            | $ | 0.71 |            |  | $ | 0.28 | 
|Cumulative effect of change in accounting                                                  |  |            | 1.21  |   |            |   |     |            |  |   |     | 
|                                                                                           |  |            |       |   |            |   |      |            | 
|Net income                                                                                 |  |            | 0.90  |   |            |   | 0.71 |            |  |   | 0.28 | 
|Interest expense related to Class A stock purchase warrants
    and convertible debentures |  |            | 0.06  |   |            |   | 0.06 |            |  |   |     | 
|                                                                                           |  |            |       |   |            |   |      |            | 
|Net income allocable to common shareholders                                                |  | $          | 0.96  |   |            | $ | 0.77 |            |  | $ | 0.28 | 
|                                                                                           |  |            |       |   |            |   |      |            | 



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

F-23



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |                                    
|--- | -----------------------------------
|17. | Fair Value of Financial Instruments



|                                                                                          |  |                 |           |  |                 |   |           |        |  |   |            |  |  |   |           | 
|----------------------------------------------------------------------------------------- |  | --------------- | --------- |  | --------------- | - | --------- | ------ |  | - | ---------- |  |  | - | --------- | 
|                                                                                          |  | January 3, 2004 |           |  | January 1, 2005 |  
|                                                                                          |  |                 |           |  |                 |  
|                                                                                          |  | Carrying        |           |  |                 |   | Carrying  |        |  |  
|                                                                                          |  | Amount          |           |  | Fair Value      |   |           | Amount |  |   | Fair Value | 
|                                                                                          |  |                 |           |  |                 |   |           |        |  |   |            | 
|Cash and cash equivalents                                                                 |  | $               | 574,475   |  |                 | $ | 574,475   |        |  | $ | 6,675,135  |  |  | $ | 6,675,135 | 
|Revolving notes payable and long-term subordinated debt,
    including current maturities |  |                 | 3,029,384 |  |                 |   | 3,060,885 |        |  |   |           |  |  |   |          | 
|Subordinated convertible debentures                                                       |  |                 | 4,500,000 |  |                 |   | 4,500,000 |        |  |   |           |  |  |   |          | 
|Capital lease obligations, including current maturities                                   |  |                 | 2,294,444 |  |                 |   | 3,002,054 |        |  |   | 1,347,112  |  |  |   | 1,686,600 | 
|Stock purchase warrants                                                                   |  |                 | 837,500   |  |                 |   | 843,465   |        |  |   |           |  |  |   |          | 





|    |                           
|--- | --------------------------
|18. | Related Party Transactions







F-24



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |                                     
|--- | ------------------------------------
|19. | Quarterly Financial Data  Unaudited



|                  |                                   |       |   |            |        |  |   |            |  |  |        |            |   |  |   |            | 
|----------------- | --------------------------------- | ----- | - | ---------- | ------ |  | - | ---------- |  |  | ------ | ---------- | - |  | - | ---------- | 
|                  |                                   | First |   |            | Second |  |   | Third      |  |  | Fourth |           
|                  |                                   |       |   |            |        |  |   |            |  |  |        |           
|Fiscal year 2003: |                                   |       |   |            |        |  |   |            |  |  |        |            |   |  |   |           
|                  | 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 | 
|                  | Net income (loss)                 |       |   | (3,297,586 | )      |  |   | 714,276    |  |  |        | (1,035,772 | ) |  |   | 5,248,988  | 
|                  | Basic earnings (loss) per share   |       |   | (2.15      | )      |  |   | 0.49       |  |  |        | (0.74      | ) |  |   | 3.30       | 
|                  | Diluted earnings (loss) per share |       |   | (2.15      | )      |  |   | 0.33       |  |  |        | (0.74      | ) |  |   | 2.29       | 
|                  | Pro forma income tax information  |       |   |            |        |  |   |            |  |  |        |            |   |  |   |            | 
|                  | Net income (loss)                 |       |   | (2,049,522 | )      |  |   | 462,356    |  |  |        | (641,431   | ) |  |   | 3,254,374  | 
|                  | Basic earnings (loss) per share   |       |   | (1.28      | )      |  |   | 0.31       |  |  |        | (0.46      | ) |  |   | 1.88       | 
|                  | Diluted earnings (loss) per share |       |   | (1.28      | )      |  |   | 0.21       |  |  |        | (0.46      | ) |  |   | 1.42       | 
|Fiscal year 2004: |                                   |       |   |            |        |  |   |            |  |  |        |            |   |  |   |           
|                  | Net sales                         |       | $ | 34,305,013 |        |  | $ | 38,904,743 |  |  | $      | 31,589,495 |   |  | $ | 45,715,412 | 
|                  | Gross profit                      |       |   | 9,741,953  |        |  |   | 12,600,049 |  |  |        | 7,030,918  |   |  |   | 17,274,878 | 
|                  | Net income (loss)                 |       |   | 165,969    |        |  |   | 922,429    |  |  |        | (2,786,486 | ) |  |   | 3,126,089  | 
|                  | Basic earnings (loss) per share   |       |   | 0.05       |        |  |   | 0.18       |  |  |        | (0.55      | ) |  |   | 0.61       | 
|                  | Diluted earnings (loss) per share |       |   | 0.05       |        |  |   | 0.17       |  |  |        | (0.55      | ) |  |   | 0.57       | 





|    |                  
|--- | -----------------
|20. | Subsequent Events



| |                      
| | ---------------------
| | Change in Fiscal Year





| |                                               
| | ----------------------------------------------
| | Private Placement of Common Stock and Warrants



F-25