##### 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 28, 2006                                                  
|          
|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


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o o þ


12b-2 o þ


10-K




DOCUMENTS INCORPORATED BY REFERENCE












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##### 










TABLE OF CONTENTS


|                                                                   |  |                                                                                                                      |  |  |    |  |  | 
|------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------- |  |  | -- |  |  | 
|PART I                                                            
|Item 1.                                                            |  | Business                                                                                                             |  |  | 3  | 
|Item 1A.                                                           |  | Risk Factors                                                                                                         |  |  | 23 | 
|Item 1B.                                                           |  | Unresolved Staff Comments                                                                                            |  |  | 23 | 
|Item 2.                                                            |  | Properties                                                                                                           |  |  | 23 | 
|Item 3.                                                            |  | Legal Proceedings                                                                                                    |  |  | 23 | 
|Item 4.                                                            |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |  | 23 | 
|PART II                                                           
|Item 5.                                                            |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |  | 23 | 
|Item 6.                                                            |  | Selected Financial Data                                                                                              |  |  | 26 | 
|Item 7.                                                            |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |  | 28 | 
|Item 7A.                                                           |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |  | 40 | 
|Item 8.                                                            |  | Financial Statements and Supplementary
    Data                                                                      |  |  | 40 | 
|Item 9.                                                            |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |  | 40 | 
|Item 9A.                                                           |  | Controls and Procedures                                                                                              |  |  | 40 | 
|Item 9B.                                                           |  | Other Information                                                                                                    |  |  | 41 | 
|PART III                                                          
|Item 10.                                                           |  | Directors and Executive Officers of the
    Registrant                                                               |  |  | 41 | 
|Item 11.                                                           |  | Executive Compensation                                                                                               |  |  | 43 | 
|Item 12.                                                           |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |  | 43 | 
|Item 13.                                                           |  | Certain Relationships and Related
    Transactions                                                                   |  |  | 43 | 
|Item 14.                                                           |  | Principal Accountant Fees and Services                                                                               |  |  | 43 | 
|PART IV                                                           
|Item 15.                                                           |  | Exhibits and Financial Statement
    Schedules                                                                       |  |  | 43 | 
|Sixth Amendment to Amended/Restated Loan and Security Agreement   
|Seventh Amendment to Amended/Restated Loan and Security Agreement 
|Consent of Independent Registered Public Accounting Firm          
|Power of Attorney                                                 
|Rule 13a-14(a)/15d-14(a) Certification to Section 302 by CEO      
|Rule 13a-14(a)/15d-14(a) Certification to Section 302 by CFO      
|Section 1350 Certifications Pursuant to Section 906 by CEO and CFO



2



---



##### Table of Contents






PART I







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

General










10-K,


3



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##### Table of Contents



Company History


pre-IPO


10-K.


Growth Strategy






| |                                     
| | ------------------------------------
| | Opening New Stores in Key Locations.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We currently plan to open 30 to 35 new stores in fiscal year
    2006 and 30 to 35 new stores in fiscal year 2007. Our strong
    relationships with landlords allow us to secure desirable
    locations in fashion malls. In selecting specific sites, 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 a specific location. We
    constantly update our search for new locations and have
    identified 200 additional locations for potential new stores. We
    opened 30 new stores in fiscal year 2005, 17 new stores in
    fiscal year 2004, and three new stores in fiscal year 2003. As
    of April 1, 2006, we have opened five new stores in fiscal
    year 2006.
|
| |  | We expect our new stores to average approximately $875,000 in
    store volume and to contribute approximately $160,000 of cash
    flow in their second year of operations. Construction costs for
    new stores currently average approximately $360,000. In
    connection with opening a new store, we typically receive a
    construction allowance from the landlord, which can range from
    $25,000 to over $100,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | We believe that the operating infrastructure we have in place is
    capable of integrating a significant number of new stores with
    relatively 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.                                                                                                                                                                                                                                                                                                                                        

4



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##### Table of Contents





| |                                         
| | ----------------------------------------
| | Expanding Presence of New Format Stores.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We believe that we have had great success in remodeling existing
    Bakers stores into our new format. Through January 28,
    2006, 118 Bakers stores have been opened in or remodeled into
    our new store format. We expect our new format percentage to
    grow to more than 70% of our total Bakers store base by the end
    of fiscal year 2006. Sales at remodeled stores show significant
    increases in volume after they are opened in the new format. We
    believe our new format stores generate 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 $300,000 and the remodeling typically 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
    19 Bakers stores in fiscal year 2005 and 14 Bakers stores in
    fiscal year 2004 into the new format. We currently plan to
    remodel approximately 20 existing Bakers stores into the new
    format during fiscal year 2006. We have identified approximately
    40 additional stores to be upgraded. Typically, our stores are
    remodeled in connection with lease renewals.                                                                                                 
|
| |  | We will close existing stores at the end of their current lease
    terms when we do not believe that remodeling into our new format
    will generate an acceptable economic return or when we otherwise
    cannot renew leases under terms that are mutually acceptable to
    us and our landlords. Closing underperforming stores allows us
    to better focus on our growth objectives. We closed 13 stores in
    fiscal year 2005, 12 stores in fiscal year 2004, and 21 stores
    in fiscal year 2003. We closed two stores during our four week
    transition period ended January 29, 2005. As of
    April 1, 2006, we closed two stores in fiscal year 2006.
    Please see Item 7. Managements Discussion and
    Analysis of Financial Condition and Results of Operations
    for a table regarding the number of stores opened, acquired and
    closed in the last three years.



| |                             
| | ----------------------------
| | Increasing Same Store Sales.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We attempt to keep our product mix fresh and on target by
    constantly testing new fashions and actively monitoring
    sell-through rates in our stores. Our team of footwear
    retailers, in-house designers and merchants use their industry
    experience, relationships with agents and branded footwear
    producers, and their participation in industry trade shows to
    analyze, interpret and translate fashion trends affecting
    todays young women into the footwear and accessory styles
    they desire.                         
|
| |  | We employ a test and react strategy that constantly updates our
    product mix while minimizing inventory risk. This strategy is
    supported by our strong relationships with manufacturers which
    allow our merchandising and buying teams to negotiate short
    lead-times, enabling us to test new styles and react quickly to
    fashion trends and keep fast-moving inventory in stock.                                                                                                                                                       
|
| |  | We seek to continually improve the quality of our footwear
    offerings in order to meet our customers expectations and
    to allow us to strategically increase our price points. 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.                                                                 
|
| |  | We also intend to drive same store sales increases through an
    enhanced offering of accessories and through the introduction
    and expansion of branded accessories. Accessories accounted for
    10.6% of merchandise sales in fiscal year 2005 and we believe
    that there is significant potential to expand our accessory
    sales and margins.                                                                                                                                                                                               
|
| |  | Our stores sell national branded footwear 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
    presence of national branded merchandise in our product mix will
    also increase the sales of our private label merchandise. We
    continue to add sought after brands and to enhance the value of
    our private label

5



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##### Table of Contents



| |  |                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------
| |  | assortment. Approximately 15.5% of our net shoe sales for fiscal
    year 2005 consisted of branded footwear.



| |                                    
| | -----------------------------------
| | Expanding into new retail channels.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Since we began operating our Internet store in fiscal year 2000,
    our Internet sales have grown rapidly. For fiscal year 2005 our
    Internet sales were $3.9 million. We believe our Web
    presence is important in expanding our ability to reach our
    target customer base and enhances the services we provide our
    customers. Furthermore, we believe our Internet store increases
    customer traffic at our Bakers stores and enables potential
    customers to locate our stores.                                                                                                                         
|
| |  | In March 2006, we mailed 400,000 copies of our inaugural Bakers
    catalog to existing and prospective customers. We believe that
    the catalog allows us to broaden our appeal by showcasing our
    stylish image and upscale offerings. Preliminary indications are
    that customer responses to this mailing have been very positive.
    We anticipate issuing an additional three or four catalogs
    during fiscal year 2006. We believe that our catalog will
    provide a new channel for our customers to purchase our
    merchandise and will increase traffic at our Internet store and
    our mall stores.

Product Development and Merchandising








Product Mix






| |               
| | --------------
| | Private Label.



6



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

® ® ® ® ® ®




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

ready-to


7



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



|                       |       |                |      |       |      |  |      |       |   |  |      |       |  
|---------------------- | ----- | -------------- | ---- | ----- | ---- |  | ---- | ----- | - |  | ---- | ----- | -
|                       |       | Fiscal Year(1) |     
|                       |       |                |     
|Category               |       | 2003           |      |       | 2004 |  |      | 2005  |  
|                       |       |                |      |       |      |  |      |       |  
|Private Label Footwear |       |                | 75.0 | %     |      |  | 74.0 | %     |   |  | 75.5 | %    
|Branded Footwear       |       |                | 15.5 | %     |      |  | 15.6 | %     |   |  | 13.9 | %    
|Accessories            |       |                | 9.5  | %     |      |  | 10.4 | %     |   |  | 10.6 | %    
|                       |       |                |      |       |      |  |      |       |  
|                       | Total |                |      | 100.0 | %    |  |      | 100.0 | % |  |      | 100.0 | %
|                       |       |                |      |       |      |  |      |       |  






|    |                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------
|(1) | Merchandise mix during our transition period in January 2005 was
    not materially different from that in the table.



| |                         
| | ------------------------
| | Planning and Allocation.











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





8



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Stores




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









|              |  |        |    | 
|------------- |  | ------ | -- | 
|              |  | No.    |   
|              |  | Stores |   
|              |  |        |   
|Alabama       |  |        | 2  | 
|Arizona       |  |        | 5  | 
|Arkansas      |  |        | 1  | 
|California    |  |        | 34 | 
|Colorado      |  |        | 3  | 
|Connecticut   |  |        | 4  | 
|Delaware      |  |        | 1  | 
|Florida       |  |        | 19 | 
|Georgia       |  |        | 15 | 
|Idaho         |  |        | 1  | 
|Illinois      |  |        | 16 | 
|Indiana       |  |        | 4  | 
|Kansas        |  |        | 1  | 
|Louisiana     |  |        | 4  | 
|Maryland      |  |        | 8  | 
|Massachusetts |  |        | 6  | 
|Michigan      |  |        | 10 | 
|Minnesota     |  |        | 2  | 
|Missouri      |  |        | 6  | 
|Nebraska      |  |        | 2  | 

9



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|               |  |        |      | 
|-------------- |  | ------ | ---- | 
|               |  | No.    |     
|               |  | Stores |     
|               |  |        |     
|Nevada         |  |        | 4    | 
|New Hampshire  |  |        | 1    | 
|New Jersey     |  |        | 10   | 
|New Mexico     |  |        | 1    | 
|New York       |  |        | 18   | 
|North Carolina |  |        | 3    | 
|Ohio           |  |        | 6    | 
|Oklahoma       |  |        | 2    | 
|Pennsylvania   |  |        | 7    | 
|Rhode Island   |  |        | 2    | 
|South Carolina |  |        | 1    | 
|Texas          |  |        | 24   | 
|Utah           |  |        | 3    | 
|Virginia       |  |        | 5    | 
|Washington     |  |        | 2    | 
|Wisconsin      |  |        | 2    | 
|               |  |        |     
|Total Stores   |  |        | 235* | 
|Total States   |  |        | 36   | 






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



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









|                                            |  |                    |  |                         
|------------------------------------------- |  | ------------------ |  | ------------------------
|                                            |  | Bakers             |  | Wild Pair               
|                                            |  |                    |  |                         
|Target customer                             |  | Women  ages 16-35 |  | Men & women  ages 17-29
|Private label sales                         |  | 85%  88%          |  | 35%  40%               
|Branded sales                               |  | 12%  15%          |  | 60%  65%               
|Fashion content                             |  | Widely-accepted    |  | Edgy, lifestyle-based   
|Number of stores as of
    January 28, 2006 |  | 208                |  | 27                      
|Approximate average store size              |  | 2,450 square feet  |  | 1,800 square feet       

10



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##### Table of Contents





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











Sourcing and Distribution




11



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##### Table of Contents











Information Systems and Technology








Marketing and Advertising






12



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##### Table of Contents







Competition








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







| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | department stores (such as Bloomingdales, Macys,
    Dillards and Kohls);             
|
| |  | national branded wholesalers (such as 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);                                           
|
| |  | discount stores (such as Wal-Mart, Target and K-Mart); and, to a
    lesser extent,       
|
| |  | apparel retailers (such as bebe, Charlotte Russe, Rampage and
    Wet Seal).              



13



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History of Bakers Shoe Stores




Employees




Properties






Intellectual Property and Proprietary Rights


tm ®


Seasonality


back-to


14



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##### Table of Contents





Cautionary Note Regarding Forward-Looking Statements and
Risk Factors


10-K 10-K






| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to identify and respond to changing consumer fashion
    preferences;                                                                                                           
|
| |  | our susceptibility to operating losses;                                                                                                                                                     
|
| |  | our inability to expand as planned including our failure to
    integrate a significant number of new stores;                                                                               
|
| |  | the risk factors described below;                                                                                                                                                           
|
| |  | our expectations regarding future financial results or
    performance contained in Item 7. Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations;
|
| |  | our business strategy;                                                                                                                                                                      
|
| |  | the market opportunity for our services and products;                                                                                                                                       
|
| |  | our estimates regarding our capital requirements and needs for
    additional financing;                                                                                                    
|
| |  | any of our other plans, objectives, expectations and intentions
    contained in this
    Form 10-K that are
    not historical facts; and                                                  
|
| |  | changes in general economic and business conditions.                                                                                                                                        

Risk Factors




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



15



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##### Table of Contents







| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 growth strategy relies on the continued addition of
    new stores, which could strain our resources and cause the
    performance of our existing stores to suffer.







| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | identifying suitable markets and sites for new store locations;                                   
|
| |  | negotiating acceptable lease terms;                                                               
|
| |  | availability of sufficient capital resources;                                                     
|
| |  | acceptance of store formats and product offerings in different
    locations; and                 
|
| |  | managing inventory effectively to meet the needs of new and
    existing stores on a timely basis.

16



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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.





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



17



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##### Table of Contents







| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                                                                                                                         
|
| |  | 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;                                                                                                                         

18



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##### Table of Contents





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





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



19



---



##### Table of Contents







| |                                                                                  
| | ---------------------------------------------------------------------------------
| | We would be adversely affected if our distribution
    operations were disrupted.





| |                                                                      
| | ---------------------------------------------------------------------
| | We may be subject to liability under our registration
    statements.



10-K/ 10-Q/




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

debtor-in


20



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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.

21



---



##### 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.





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





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



22



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##### Table of Contents





Executive Officers of the Registrant









|         |              
|-------- | -------------
|Item 1A. | Risk Factors.








|         |                           
|-------- | --------------------------
|Item 1B. | Unresolved Staff Comments.








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




23



---



##### Table of Contents





|                                                           |  |      |       |  |     |   |       | 
|---------------------------------------------------------- |  | ---- | ----- |  | --- | - | ----- | 
|                                                           |  | High |       |  | Low |  
|                                                           |  |      |       |  |     |  
|2004                                                       |  |      |       |  |     |   |       | 
|First quarter (ended April 3, 2004)(1)                     |  | $    | 11.85 |  |     | $ | 7.51  | 
|Second quarter (ended July 3, 2004)                        |  |      | 11.91 |  |     |   | 9.27  | 
|Third quarter (ended October 2, 2004)                      |  |      | 10.76 |  |     |   | 7.22  | 
|Fourth quarter (ended January 1, 2005)                     |  |      | 10.15 |  |     |   | 7.20  | 
|                                                          
|Transition period(January 2, 2005 to
    January 29, 2005) |  | $    | 10.72 |  |     | $ | 9.32  | 
|                                                          
|2005                                                       |  |      |       |  |     |   |       | 
|First quarter (ended April 30, 2005)                       |  | $    | 11.34 |  |     | $ | 9.17  | 
|Second quarter (ended July 30, 2005)                       |  |      | 12.38 |  |     |   | 9.22  | 
|Third quarter (ended October 29, 2005)                     |  |      | 16.50 |  |     |   | 11.76 | 
|Fourth quarter (ended January 28, 2006)                    |  |      | 20.05 |  |     |   | 13.54 | 






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

Dividends








Recent Sales of Unregistered Securities






24



---



##### Table of Contents







Securities Authorized for Issuance Under Equity Compensation
Plans




Purchases of Equity Securities by the Issuer and Affiliated
Purchasers




25



---



##### Table of Contents








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

10-K.


|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |             |      |  |   |             |      | 
|--------------------------------------------------------------------------------------------- | ------- | ----------------------- | ----------- | ---- | ---------- | - | ----------- | ---------- |  | - | ----------- | ---- |  | ----------- | ----------- | ---- |  | - | ----------- | ---- | 
|                                                                                              |         | Fiscal Year Ended(6)(7) |            
|                                                                                              |         |                         |            
|                                                                                              |         | January 5,              |             |      | January 4, |   |             | January 3, |  |   | January 1,  |      |  | January 28, |            
|                                                                                              |         | 2002(1)                 |             |      | 2003(4)    |   |             | 2004       |  |   | 2005(5)     |      |  | 2006(8)     |            
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Net sales                                                                                     |         | $                       | 140,841,929 |      |            | $ | 151,147,810 |            |  | $ | 148,223,553 |      |  | $           | 150,514,663 |      |  | $ | 194,780,125 |     
|Gross profit                                                                                  |         |                         | 42,169,832  |      |            |   | 44,563,077  |            |  |   | 44,530,778  |      |  |             | 46,033,614  |      |  |   | 65,340,924  |     
|Income (loss) before cumulative effect of change in accounting
    and income taxes           |         |                         | 4,897,376   |      |            |   | (714,797    | )          |  |   | 1,629,906   |      |  |             | 465,533     |      |  |   | 10,502,572  |     
|Provision for (benefit from) income taxes                                                     |         |                         |            |      |            |   |            |            |  |   |            |      |  |             | (962,468    | )    |  |   | 3,949,282   |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Income (loss) before cumulative effect of change in accounting                                |         |                         | 4,897,376   |      |            |   | (714,797    | )          |  |   | 1,629,906   |      |  |             | 1,428,001   |      |  |   | 6,553,290   |     
|Cumulative effect of change in accounting(2)                                                  |         |                         |            |      |            |   | 2,774,899   |            |  |   |            |      |  |             |            |      |  |   |            |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Net income(3)                                                                                 |         | $                       | 4,897,376   |      |            | $ | 2,060,102   |            |  | $ | 1,629,906   |      |  | $           | 1,428,001   |      |  | $ | 6,553,290   |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Net income per common share                                                                   |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |             |      |  |   |             |     
|                                                                                              | Basic   |                         | $           | 3.27 |            |   | $           | 1.36       |  |   | $           | 0.90 |  |             | $           | 0.31 |  |   | $           | 1.10 | 
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|                                                                                              | Diluted |                         | $           | 2.14 |            |   | $           | 0.96       |  |   | $           | 0.77 |  |             | $           | 0.28 |  |   | $           | 1.04 | 
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Total assets                                                                                  |         | $                       | 22,649,476  |      |            | $ | 30,022,982  |            |  | $ | 29,941,167  |      |  | $           | 49,370,708  |      |  | $ | 74,754,684  |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Long-term debt, capital lease obligations and redeemable
    securities, less current portion |         | $                       | 4,518,298   |      |            | $ | 9,343,154   |            |  | $ | 7,695,365   |      |  | $           | 679,414     |      |  | $ | 247,671     |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Unaudited pro forma information(3):                                                           |         |                         | (Unaudited  | )    |            |   | (Unaudited  | )          |  |   | (Unaudited  | )    |  |             |             |      |  |   |             |     
|Income (loss) before cumulative effect of change in accounting
    and income taxes           |         | $                       | 4,808,657   |      |            | $ | (878,442    | )          |  | $ | 1,697,725   |      |  |             |             |      |  |   |             |     
|Provision for (benefit from) income taxes                                                     |         |                         | 1,581,390   |      |            |   | (302,363    | )          |  |   | 657,758     |      |  |             |             |      |  |   |             |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Income (loss) before cumulative effect of change in accounting                                |         |                         | 3,227,267   |      |            |   | (576,079    | )          |  |   | 1,039,967   |      |  |             |             |      |  |   |             |     
|Cumulative effect of change in accounting(2)                                                  |         |                         |            |      |            |   | 1,763,934   |            |  |   |            |      |  |             |             |      |  |   |             |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Net income                                                                                    |         | $                       | 3,227,267   |      |            | $ | 1,187,855   |            |  | $ | 1,039,967   |      |  |             |             |      |  |   |             |     
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|Net income per common share                                                                   |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |             |      |  |   |             |     
|                                                                                              | Basic   |                         | $           | 2.10 |            |   | $           | 0.75       |  |   | $           | 0.49 |  |             |             |      |  |   |             |      | 
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            
|                                                                                              | Diluted |                         | $           | 1.41 |            |   | $           | 0.54       |  |   | $           | 0.47 |  |             |             |      |  |   |             |      | 
|                                                                                              |         |                         |             |      |            |   |             |            |  |   |             |      |  |             |            






|    |                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

26



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Represents the cumulative effect of adopting
    SFAS No. 142, Goodwill and Other Intangible
    Assets, and recognizing as income the unamortized deferred
    credit related to the excess of fair value over cost arising
    from the acquisition of our Bakers and Wild Pair store locations
    in 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) | Through January 3, 2004, we elected S corporation
    status for Federal and state income tax purposes. Accordingly,
    for periods through January 3, 2004, no provision was 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 local income taxes. Effective January 4, 2004, we
    terminated our S election and became taxable 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 12 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,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities  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 $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. We 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
    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 terminated.
    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 3 in the Notes to the Financial Statements.
|   
|(6) | On March 10, 2005, we changed our fiscal year to the
    Saturday closest to January 31. Previously our fiscal year ended
    four weeks earlier. As a result of this change, we had a four
    week transition period ended January 29, 2005. The audited
    results of operations and changes in shareholders equity
    and cash flows for the four week transition period are included
    in our Financial Statements and Notes thereto. We believe that
    the change in our fiscal year end does not impact the
    comparability of the five fiscal years presented in this table.
    For the four week transition period ended January 29, 2005,
    net sales were $9,158,759, gross profit was $608,547, loss
    before income taxes was $2,935,201, benefit from income taxes
    was $1,069,402, net loss was $1,865,799 and net loss per common
    share on both a basic and diluted basis was $0.37. At
    January 29, 2005, total assets were $46,722,870 and
    long-term debt, capital lease obligations and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

27



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##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | redeemable securities, less current portion was $634,413. The
    following unaudited information for the four weeks ended
    January 31, 2004, the comparable period to the four week
    transition period, is presented for comparative purposes: net
    sales were $8,762,538, gross profit was $1,871,644, loss before
    income taxes was $1,451,810, benefit from income taxes was
    $1,709,249, net income was $257,439, basic earnings per share
    was $0.20, and diluted earnings per share was $0.10. At
    January 31, 2004, total assets were $31,183,356 (unaudited)
    and long-term debt, capital lease obligations and redeemable
    securities, less current portion was $7,561,579 (unaudited).
|   
|(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
    Item 7. 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.                                                                                                                                                                                                                                                                                                                              
|   
|(8) | On April 8, 2005, we sold 1,000,000 shares of common
    stock and warrants to purchase 250,000 shares of
    common stock to certain investors in a private placement for
    gross proceeds of $8,750,000. The warrants have an exercise
    price of $10.18 per share and, subject to certain
    conditions, expire on April 8, 2010. We also issued
    warrants to purchase 125,000 shares of common stock at
    an exercise price of $10.18 to the placement agent. The net
    proceeds after placement fees and expenses were $7,538,419. We
    used the proceeds to finance new store expansion and remodel
    existing stores into our new format.                                                            






|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|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
Note Regarding Forward-Looking Statements and Risk
Factors and Item 1. Business  Risk
Factors 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










28



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##### Table of Contents









Critical Accounting Policies








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

first-in




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

Accounting for the
Disposal of Long-Lived Assets start-up




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

Accounting for Income Taxes


29



---



##### Table of Contents







Fiscal Year


52-week


Results of Operations




|                                                       |  |                   |       |   |            |  |       |             |  |  |       |  
|------------------------------------------------------ |  | ----------------- | ----- | - | ---------- |  | ----- | ----------- |  |  | ----- | -
|                                                       |  | Fiscal Year Ended |      
|                                                       |  |                   |      
|                                                       |  | January 3,        |       |   | January 1, |  |       | January 28, | 
|                                                       |  | 2004              |       |   | 2005       |  |       | 2006        | 
|                                                       |  |                   |       |   |            |  |       |             | 
|Net sales                                              |  |                   | 100.0 | % |            |  | 100.0 | %           |  |  | 100.0 | %
|Cost of merchandise sold, occupancy and buying expense |  |                   | 70.0  |   |            |  | 69.4  |             |  |  | 66.5  |  
|                                                       |  |                   |       |   |            |  |       |             | 
|Gross profit                                           |  |                   | 30.0  |   |            |  | 30.6  |             |  |  | 33.5  |  
|Selling expense                                        |  |                   | 20.0  |   |            |  | 20.9  |             |  |  | 19.7  |  
|General and administrative expense                     |  |                   | 7.5   |   |            |  | 8.6   |             |  |  | 8.1   |  
|Loss on disposal of property and equipment             |  |                   | 0.1   |   |            |  | 0.3   |             |  |  | 0.2   |  
|Impairment and disposal of long-lived assets           |  |                   | 0.1   |   |            |  | 0.1   |             |  |  |      |  
|                                                       |  |                   |       |   |            |  |       |             | 
|Operating income                                       |  |                   | 2.3   |   |            |  | 0.7   |             |  |  | 5.5   |  
|Other income (expense)                                 |  |                   | (0.1  | ) |            |  | 0.2   |             |  |  | 0.1   |  
|Interest expense                                       |  |                   | (1.1  | ) |            |  | (0.6  | )           |  |  | (0.2  | )
|Provision for (benefit from) income taxes              |  |                   |      |   |            |  | (0.7  | )           |  |  | 2.0   |  
|                                                       |  |                   |       |   |            |  |       |             | 
|Net income                                             |  |                   | 1.1   | % |            |  | 1.0   | %           |  |  | 3.4   | %
|                                                       |  |                   |       |   |            |  |       |             | 

30



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##### Table of Contents





|                                        |  |                   |     |   |            |  |     |             |  |  |     |  
|--------------------------------------- |  | ----------------- | --- | - | ---------- |  | --- | ----------- |  |  | --- | -
|                                        |  | Fiscal Year Ended |    
|                                        |  |                   |    
|                                        |  | January 3,        |     |   | January 1, |  |     | January 28, | 
|                                        |  | 2004              |     |   | 2005       |  |     | 2006(1)     | 
|                                        |  |                   |     |   |            |  |     |             | 
|Number of stores at beginning of period |  |                   | 233 |   |            |  | 215 |             |  |  | 218 |  
|Stores opened or acquired during period |  |                   | 3   |   |            |  | 17  |             |  |  | 30  |  
|Stores closed during period             |  |                   | (21 | ) |            |  | (12 | )           |  |  | (13 | )
|                                        |  |                   |     |   |            |  |     |             | 
|Number of stores at end of period       |  |                   | 215 |   |            |  | 220 |             |  |  | 235 |  
|                                        |  |                   |     |   |            |  |     |             | 






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The number of stores at the beginning of fiscal year 2005 is net
    of two stores that were closed during the four week transition
    period ended January 29, 2005.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Fiscal Year Ended January 28, 2006 Compared to Fiscal
    Year Ended January 1, 2005

Net sales.


Gross profit.


Selling expense.


General and administrative expense.


Loss on disposal of property and equipment.


31



---



##### Table of Contents



Interest expense.


Income tax expense (benefit).


Net income.




| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Four Week Transition Period Ended January 29, 2005
    Compared to Four Weeks Ended January 31, 2004



Net sales.


Gross profit.


Selling expense.


General and administrative expense.


Income tax benefit.


32



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##### Table of Contents



Net income (loss).




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

Net sales. back-to


Gross profit.


Selling expense.


General and administrative expense.


Loss on disposal of property and equipment.


Interest expense.


Income tax benefit. Accounting for Income Taxes


Net income.


33



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##### Table of Contents



Seasonality and Quarterly Fluctuations




|                        |  |                                   |            |   |              |   |            |                 |  |   |                 |   |  |   |            | 
|----------------------- |  | --------------------------------- | ---------- | - | ------------ | - | ---------- | --------------- |  | - | --------------- | - |  | - | ---------- | 
|                        |  | Fiscal Year Ended January 3, 2004 |           
|                        |  |                                   |           
|                        |  | Thirteen                          |            |   | Thirteen     |   |            | Thirteen Weeks  |  |   | Thirteen Weeks  |  
|                        |  | Weeks Ended                       |            |   | Weeks Ended  |   |            | Ended           |  |   | Ended           |  
|                        |  | April 5, 2003                     |            |   | July 5, 2003 |   |            | October 4, 2003 |  |   | January 3, 2004 |  
|                        |  |                                   |            |   |              |   |            |                 |  |   |                 |  
|Net sales               |  | $                                 | 31,909,958 |   |              | $ | 38,310,685 |                 |  | $ | 34,274,081      |   |  | $ | 43,728,829 | 
|Gross profit            |  |                                   | 7,524,938  |   |              |   | 11,362,394 |                 |  |   | 9,211,156       |   |  |   | 16,432,290 | 
|Operating expenses      |  |                                   | 10,389,028 |   |              |   | 10,181,345 |                 |  |   | 9,783,409       |   |  |   | 10,719,235 | 
|Operating income (loss) |  |                                   | (2,864,090 | ) |              |   | 1,181,049  |                 |  |   | (572,253        | ) |  |   | 5,713,055  | 

|                        |  |                                   |            |   |              |   |            |                 |  |   |                 |   |  |   |            | 
|----------------------- |  | --------------------------------- | ---------- | - | ------------ | - | ---------- | --------------- |  | - | --------------- | - |  | - | ---------- | 
|                        |  | Fiscal Year Ended January 1, 2005 |           
|                        |  |                                   |           
|                        |  | Thirteen                          |            |   | Thirteen     |   |            | Thirteen Weeks  |  |   | Thirteen Weeks  |  
|                        |  | Weeks Ended                       |            |   | Weeks Ended  |   |            | Ended           |  |   | Ended           |  
|                        |  | April 3, 2004                     |            |   | July 3, 2004 |   |            | October 2, 2004 |  |   | January 1, 2005 |  
|                        |  |                                   |            |   |              |   |            |                 |  |   |                 |  
|Net sales               |  | $                                 | 34,305,013 |   |              | $ | 38,904,743 |                 |  | $ | 31,589,495      |   |  | $ | 45,715,412 | 
|Gross profit            |  |                                   | 9,667,056  |   |              |   | 12,467,827 |                 |  |   | 6,847,351       |   |  |   | 17,051,380 | 
|Operating expenses      |  |                                   | 10,904,057 |   |              |   | 10,856,076 |                 |  |   | 11,173,404      |   |  |   | 12,026,681 | 
|Operating income (loss) |  |                                   | (1,237,001 | ) |              |   | 1,611,751  |                 |  |   | (4,326,053      | ) |  |   | 5,024,699  | 

|                        |  |                                       |            |  |               |   |            |                  |  |   |                  |   |  |   |            | 
|----------------------- |  | ------------------------------------- | ---------- |  | ------------- | - | ---------- | ---------------- |  | - | ---------------- | - |  | - | ---------- | 
|                        |  | Fiscal Year Ended January 28, 2006(1) |           
|                        |  |                                       |           
|                        |  | Thirteen                              |            |  | Thirteen      |   |            | Thirteen         |  |   | Thirteen         |  
|                        |  | Weeks Ended                           |            |  | Weeks Ended   |   |            | Weeks Ended      |  |   | Weeks Ended      |  
|                        |  | April 30, 2005                        |            |  | July 30, 2005 |   |            | October 29, 2005 |  |   | January 28, 2006 |  
|                        |  |                                       |            |  |               |   |            |                  |  |   |                  |  
|Net sales               |  | $                                     | 44,943,180 |  |               | $ | 45,255,560 |                  |  | $ | 43,242,897       |   |  | $ | 61,338,488 | 
|Gross profit            |  |                                       | 15,406,619 |  |               |   | 14,983,321 |                  |  |   | 11,840,353       |   |  |   | 23,110,631 | 
|Operating expenses      |  |                                       | 12,324,081 |  |               |   | 12,977,218 |                  |  |   | 13,552,715       |   |  |   | 15,770,151 | 
|Operating income (loss) |  |                                       | 3,082,538  |  |               |   | 2,006,103  |                  |  |   | (1,712,362       | ) |  |   | 7,340,480  | 






|    |                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In connection with the change in our fiscal year we had a four
    week transition period from January 2, 2005 through
    January 29, 2005. The summary operating results for our
    transition period were as follows: net sales of $9,158,759,
    gross profit of $608,547, operating expenses of $3,530,744, and
    operating loss of $2,922,197.

back-to






Liquidity and Capital Resources




34



---



##### Table of Contents







|                            |  |            |            |  |             |   |            | 
|--------------------------- |  | ---------- | ---------- |  | ----------- | - | ---------- | 
|                            |  | January 1, |            |  | January 28, |  
|                            |  | 2005       |            |  | 2006        |  
|                            |  |            |            |  |             |  
|Cash                        |  | $          | 6,675,135  |  |             | $ | 3,924,970  | 
|Inventories                 |  |            | 16,790,753 |  |             |   | 25,997,859 | 
|Total current assets        |  |            | 28,302,503 |  |             |   | 35,366,487 | 
|Revolving credit facility   |  |            |           |  |             |   |           | 
|Total current liabilities   |  |            | 17,124,315 |  |             |   | 27,599,760 | 
|Net working capital         |  |            | 11,178,188 |  |             |   | 7,766,727  | 
|Property and equipment, net |  |            | 20,714,211 |  |             |   | 38,701,362 | 
|Total assets                |  |            | 49,370,708 |  |             |   | 74,754,684 | 
|Total shareholders equity  |  |            | 27,074,537 |  |             |   | 40,390,584 | 
|Unused borrowing capacity*  |  |            | 12,354,131 |  |             |   | 19,220,644 | 






|  |                                                                
|- | ---------------------------------------------------------------
|* | -as calculated under the terms of our revolving credit facility





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







35



---



##### Table of Contents









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









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





36



---



##### Table of Contents



S-3


Accounting for Derivative Instruments and Hedging Activities Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock The Effect of a Liquidated
Damages Clause on a Freestanding Financial Instrument Subject to
EITF Issue
No. 00-19,
Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Companys Own
Stock,










37



---



##### Table of Contents















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





38



---



##### Table of Contents







Contractual Obligations




|                               |  |                        |             |           |        |   |            |           |           |   |            |  |  |         |            |  |  |   |            | 
|------------------------------ |  | ---------------------- | ----------- | --------- | ------ | - | ---------- | --------- | --------- | - | ---------- |  |  | ------- | ---------- |  |  | - | ---------- | 
|                               |  | Payments Due in Period |            
|                               |  |                        |            
|                               |  |                        |             | Less Than |        |   |            |           | More Than |  
|Contractual Obligations        |  | Total                  |             |           | 1 Year |   |            | 1-3 Years |           |   | 3-5 Years  |  |  | 5 Years |           
|                               |  |                        |             |           |        |   |            |           |           |   |            |  |  |         |           
|Long-term debt obligations     |  | $                      |            |           |        | $ |           |           |           | $ |           |  |  | $       |           |  |  | $ |           | 
|Capital lease obligations(1)   |  |                        | 812,028     |           |        |   | 509,893    |           |           |   | 302,135    |  |  |         |           |  |  |   |           | 
|Operating lease obligations(2) |  |                        | 174,481,446 |           |        |   | 22,557,412 |           |           |   | 42,632,764 |  |  |         | 39,252,419 |  |  |   | 70,038,851 | 
|Purchase obligations(3)        |  |                        | 32,367,717  |           |        |   | 32,359,353 |           |           |   | 8,364      |  |  |         |           |  |  |   |           | 
|Other long-term liabilities    |  |                        |            |           |        |   |           |           |           |   |           |  |  |         |           |  |  |   |           | 
|                               |  |                        |             |           |        |   |            |           |           |   |            |  |  |         |           
|Total                          |  | $                      | 207,661,191 |           |        | $ | 55,426,658 |           |           | $ | 42,943,263 |  |  | $       | 39,252,419 |  |  | $ | 70,038,851 | 
|                               |  |                        |             |           |        |   |            |           |           |   |            |  |  |         |           






|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(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 store construction and miscellaneous service contracts.

Off-Balance Sheet Arrangements




39



---



##### Table of Contents





Recent Accounting Pronouncements




Impact of Inflation









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








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








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








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

Disclosure Controls and Procedures. 13a-15(e) 15d-15(e)


40



---



##### Table of Contents





Internal Control Over Financial Reporting.







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






PART III







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

S-K.


Executive Officers of the Registrant




|                         |  |     |    |  |          |                                                                                
|------------------------ |  | --- | -- |  | -------- | -------------------------------------------------------------------------------
|Name                     |  | Age |    |  | Position
|                         |  |     |    |  |         
|Peter A. Edison          |  |     | 50 |  |          | Chairman of the Board and Chief Executive Officer                              
|Michele A. Bergerac      |  |     | 50 |  |          | President and Director                                                         
|Mark D. Ianni            |  |     | 45 |  |          | Executive Vice President  General Merchandise Manager                         
|Lawrence L. Spanley, Jr. |  |     | 59 |  |          | Executive Vice President  Chief Financial Officer,
    Treasurer and Secretary
|Stanley K. Tusman        |  |     | 59 |  |          | Executive Vice President  Inventory and Information
    Management            
|Joseph R. Vander Pluym   |  |     | 54 |  |          | Executive Vice President  Stores                                              

Peter A. Edison


41



---



##### Table of Contents



Michele A. Bergerac 17-year


Mark D. Ianni


Lawrence L. Spanley, Jr.


Stanley K. Tusman


Joseph R. Vander Pluym 30-year


Change-in


Section 16(a) Beneficial Ownership Reporting
Compliance




Code of Ethics


10-K.


42



---



##### Table of Contents








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








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








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








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






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 10.37. The exhibits were filed
    with the SEC but were not included in the printed version of the
    Annual Report to Shareholders.

43



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##### Table of Contents



SIGNATURES


10-K




| |                                
| | -------------------------------
| | BAKERS
    FOOTWEAR GROUP, INC.

|               |  |                                                                                                                         
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------
|April 14, 2006 |  | By /s/ PETER A. EDISONPeter A. EdisonChairman 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 14, 2006
|                                    
|*(Lawrence L. Spanley, Jr.)          |  | Executive Vice President, Chief Financial Officer, Treasurer and
    Secretary (Principal Financial Officer and Principal Accounting
    Officer) |  | April 14, 2006
|                                    
|*(Andrew N. Baur)                    |  | Director                                                                                                                                          |  | April 14, 2006
|                                    
|*(Michele Bergerac)                  |  | Director                                                                                                                                          |  | April 14, 2006
|                                    
|*(Timothy F. Finley)                 |  | Director                                                                                                                                          |  | April 14, 2006
|                                    
|*(Harry E. Rich)                     |  | Director                                                                                                                                          |  | April 14, 2006
|                                    
|*(Scott C. Schnuck)                  |  | Director                                                                                                                                          |  | April 14, 2006






|  |                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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



---



##### 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
    (incorporated by reference to Exhibit A of
    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 | .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)).                                                                                                                                                                                                                        
|       
|        | 4 | .8          |  | Purchase Agreement dated March 31, 2005 by and among the
    Company and the Investors named therein (incorporated by
    reference to Exhibit 4.1 to the Companys Current
    Report on Form 8-K (File No. 000-50563), filed on
    April 13, 2005).                                                                                                                                                                                                                                                         
|       
|        | 4 | .9          |  | Registration Rights Agreement dated April 8, 2005 by and
    among the Company, the Investors named therein and Ryan
    Beck & Co., Inc. (incorporated by reference to
    Exhibit 4.2 to the Companys Current Report on
    Form 8-K (File No. 000-50563), filed on April 13,
    2005).                                                                                                                                                                                                                    



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .10         |  | Form of Warrants issued by the Company to the Investors on
    April 8, 2005 (incorporated by reference to
    Exhibit 4.3 to the Companys Current Report on
    Form 8-K (File No. 000-50563), filed on April 13,
    2005).                                                                                                                                                       
|       
|        | 4  | .11         |  | Form of Warrants issued by the Company to Ryan Beck &
    Co., Inc. or its designees on April 8, 2005 (incorporated
    by reference to Exhibit 4.4 to the Companys Current
    Report on Form 8-K (File No. 000-50563), filed on
    April 13, 2005).                                                                                                                              
|       
|        | 4  | .12         |  | Form of Lock-Up Letter Agreement relating to the transferability
    of common stock, executed by Bernard Edison and Peter A. Edison
    in April 2005 (incorporated by reference to Exhibit 4.5 to
    the Companys Current Report on Form 8-K (File
    No. 000-50563), filed on April 13, 2005).                                                                                 
|       
|        | 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 (incorporated by
    reference to Exhibit 10.2 to the Companys Current
    Report on Form 8-K (File No. 000-50563) filed on
    March 22, 2006).                                                                                                                           
|       
|        | 10 | .2          |  | Bakers Footwear Group, Inc. Cash Bonus Plan (incorporated by
    reference to Exhibit 10.2 of Amendment No. 3 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-86332), filed January 8, 2004).                                                                                                                                                              
|       
|        | 10 | .3          |  | 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 the Company, Transmodal
    Associates, Inc. and Cargotrans Transitarios Internacionais
    Ltda. (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 Bank of America, N.A.
    (successor to 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 Bank of
    America, N.A. (successor to 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
    Bank of America, N.A. (successor to 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).                                                                                                                                                                                                                                                             



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                             
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .10.4       |  | Second Amendment to Amended and Restated Loan and Security
    Agreement dated as of November 26, 2003 by and between Bank
    of America, N.A. (successor to 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 Bank of America, N.A.
    (successor to 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 Bank
    of America, N.A. (successor to 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 to Amended and Restated Loan and Security
    Agreement dated January 28, 2004 by and between Bank of
    America, N.A. (successor to 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 Bank of America, N.A.
    (successor to Fleet Retail Finance Inc.) dated as of
    January 18, 2000 (included in Exhibit 10.10).                                                                                                                                                                                                                  
|       
|        | 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
    Bank of America, N.A. (successor to Fleet Retail Group, Inc.)
    and the Company (incorporated by reference to
    Exhibit 10.17.10 to the Companys Current Report on
    Form 8-K (File No. 000-50563), filed
    September 10, 2004).                        
|       
|        | 10 | .10.11      |  | Termination of Guaranty between Peter A. Edison and Bank of
    America, N.A. (successor to Fleet Retail Group, Inc.)
    (incorporated by reference to Exhibit 10.17.11 to the
    Companys Current Report on Form 8-K (File
    No. 000-50563), filed September 10, 2004).                                                                                                               
|       
|        | 10 | .10.12      |  | Sixth Amendment Agreement to Amended and Restated Loan and
    Security Agreement dated March 28, 2005 by and among Bank
    of America, N.A. (successor to Fleet Retail Finance Inc.) and
    the Company.                                                                                                                                                                                 
|       
|        | 10 | .10.13      |  | Seventh Amendment Agreement to Amended and Restated Loan and
    Security Agreement dated December 28, 2006 by and among
    Bank of America, N.A. (successor to Fleet Retail Finance Inc.)
    and the Company.                                                                                                                                                                            
|       
|        | 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).                                                                                                         



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 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 September 12, 2005 outlining
    2005 bonus levels (incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K filed on September 16, 2005 (File
    No. 000-50563)).                                                                                                                                                                                               
|       
|        | 10 | .21         |  | Letter to Michele Bergerac dated September 12, 2005
    outlining 2005 bonus levels (incorporated by reference to
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K filed on September 16, 2005 (File
    No. 000-50563)).                                                                                                                                                                                           
|       
|        | 10 | .22         |  | Letter to Stan Tusman dated September 12, 2005 outlining
    2005 bonus levels (incorporated by reference to
    Exhibit 10.3 to the Companys Current Report on
    Form 8-K filed on September 16, 2005 (File
    No. 000-50563)).                                                                                                                                                                                                
|       
|        | 10 | .23         |  | Letter to Mark Ianni dated September 12, 2005 outlining
    2005 bonus levels (incorporated by reference to
    Exhibit 10.4 to the Companys Current Report on
    Form 8-K filed on September 16, 2005 (File
    No. 000-50563)).                                                                                                                                                                                                 
|       
|        | 10 | .24         |  | Letter to Joe Vander Pluym dated September 12, 2005
    outlining 2005 bonus levels (incorporated by reference to
    Exhibit 10.5 to the Companys Current Report on
    Form 8-K filed on September 16, 2005 (File
    No. 000-50563)).                                                                                                                                                                                           
|       
|        | 10 | .25         |  | Letter to Larry Spanley dated September 12, 2005 outlining
    2005 bonus levels (incorporated by reference to
    Exhibit 10.6 to the Companys Current Report on
    Form 8-K filed on September 16, 2005 (File
    No. 000-50563)).                                                                                                                                                                                              
|       
|        | 10 | .26         |  | Letter to Peter Edison outlining 2006 bonus levels (incorporated
    by reference to Exhibit 10.6 to the Companys Current
    Report on Form 8-K filed on March 22, 2006 (File
    No. 000-50563)).                                                                                                                                                                                                                                
|       
|        | 10 | .27         |  | Letter to Michele Bergerac outlining 2006 bonus levels
    (incorporated by reference to Exhibit 10.7 to the
    Companys Current Report on Form 8-K filed on
    March 22, 2006 (File No. 000-50563)).                                                                                                                                                                                                                            
|       
|        | 10 | .28         |  | Letter to Stan Tusman outlining 2006 bonus levels (incorporated
    by reference to Exhibit 10.8 to the Companys Current
    Report on Form 8-K filed on March 22, 2006 (File
    No. 000-50563)).                                                                                                                                                                                                                                 
|       
|        | 10 | .29         |  | Letter to Mark Ianni outlining 2006 bonus levels (incorporated
    by reference to Exhibit 10.9 to the Companys Current
    Report on Form 8-K filed on March 22, 2006 (File
    No. 000-50563)).                                                                                                                                                                                                                                  
|       
|        | 10 | .30         |  | Letter to Joe Vander Pluym outlining 2006 bonus levels
    (incorporated by reference to Exhibit 10.10 to the
    Companys Current Report on Form 8-K filed on
    March 22, 2006 (File No. 000-50563)).                                                                                                                                                                                                                           
|       
|        | 10 | .31         |  | Letter to Larry Spanley outlining 2006 bonus levels
    (incorporated by reference to Exhibit 10.11 to the
    Companys Current Report on Form 8-K filed on
    March 22, 2006 (File No. 000-50563)).                                                                                                                                                                                                                              
|       
|        | 10 | .32         |  | Summary of 2005 base salaries and April 8, 2005 stock
    option grants for executive officers (incorporated by reference
    to Exhibit 10.1 to the Companys Current Report on
    Form 8-K filed on April 14, 2005 (File
    No. 000-50563)).                                                                                                                                                                                    
|       
|        | 10 | .33         |  | Summary of March 16, 2006 stock option grants and
    performance awards for executive officers (incorporated by
    reference to Exhibit 10.1 to the Companys Current
    Report on Form 8-K filed on March 22, 2006 (File
    No. 000-50563)).                                                                                                                                                                                   
|       
|        | 10 | .34         |  | Summary of 2006 base salaries for executive officers
    (incorporated by reference to Exhibit 10.1 to the
    Companys Current Report on Form 8-K filed on
    April 5, 2006 (File No. 000-50563)).                                                                                                                                                                                                                               



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                       
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .35         |  | Summary of Compensation of Non-management Directors as of
    March 16, 2006 (incorporated by reference to
    Exhibit 10.13 to the Companys Current Report on
    Form 8-K filed on March 22, 2006 (File
    No. 000-50563)).                                       
|       
|        | 10 | .36         |  | Bakers Footwear Group, Inc. 2005 Incentive Compensation Plan
    (incorporated by reference to the Companys 2005 Proxy
    Statement dated April 27, 2005, Appendix A).                                                                                              
|       
|        | 10 | .37         |  | Form of Notice of Award of Performance Shares under Bakers
    Footwear Group, Inc. 2005 Incentive Compensation Plan
    (incorporated by reference to Exhibit 10.4 to the
    Companys Current Report on Form 8-K filed on
    March 22, 2006 (File No. 000-50563)).
|       
|        | 11 | .1          |  | Statement regarding computation of per share earnings
    (incorporated by reference from Note 15 of the Financial
    Statements).                                                                                                                                   
|       
|        | 14 | .1          |  | Code of Business Conduct (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).                                                                                                 



---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS


Contents


|                                                            |  |    
|----------------------------------------------------------- |  | ---
|Report of Independent Registered Public
    Accounting Firm |  | F-1
|Balance Sheets                                              |  | F-2
|Statements of Operations                                    |  | F-3
|Statements of Shareholders Equity                          |  | F-4
|Statements of Cash Flows                                    |  | F-5
|Notes to Financial Statements                               |  | F-6



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm














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







F-1



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.





BALANCE SHEETS


|                                                          |                                                                                                                                                                         |            |            |            |             |   |            |            | 
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ---------- | ---------- | ----------- | - | ---------- | ---------- | 
|                                                          |                                                                                                                                                                         | January 1, |            |            | January 28, |  
|                                                          |                                                                                                                                                                         | 2005       |            |            | 2006        |  
|                                                          |                                                                                                                                                                         |            |            |            |             |  
|ASSETS                                                   
|Current assets:                                           |                                                                                                                                                                         |            |            |            |             |   |            |           
|                                                          | Cash and cash equivalents                                                                                                                                               |            | $          | 6,675,135  |             |   | $          | 3,924,970  | 
|                                                          | Accounts receivable                                                                                                                                                     |            |            | 1,237,450  |             |   |            | 1,099,436  | 
|                                                          | Other receivables                                                                                                                                                       |            |            | 645,855    |             |   |            | 1,271,544  | 
|                                                          | Inventories                                                                                                                                                             |            |            | 16,790,753 |             |   |            | 25,997,859 | 
|                                                          | Prepaid expenses and other current assets                                                                                                                               |            |            | 1,048,347  |             |   |            | 1,251,581  | 
|                                                          | Deferred income taxes                                                                                                                                                   |            |            | 1,904,963  |             |   |            | 1,821,097  | 
|                                                          |                                                                                                                                                                         |            |            |            |             |  
|Total current assets                                      |                                                                                                                                                                         |            | 28,302,503 |            |             |   | 35,366,487 |           
|Property and equipment, net                               |                                                                                                                                                                         |            | 20,714,211 |            |             |   | 38,701,362 |           
|Other assets                                              |                                                                                                                                                                         |            | 353,994    |            |             |   | 686,835    |           
|                                                          |                                                                                                                                                                         |            |            |            |             |  
|Total assets                                              |                                                                                                                                                                         | $          | 49,370,708 |            |             | $ | 74,754,684 |           
|                                                          |                                                                                                                                                                         |            |            |            |             |  
|                                                         
|LIABILITIES AND SHAREHOLDERS EQUITY                     
|Current liabilities:                                      |                                                                                                                                                                         |            |            |            |             |   |            |           
|                                                          | Accounts payable                                                                                                                                                        |            | $          | 6,662,044  |             |   | $          | 12,059,734 | 
|                                                          | Accrued expenses                                                                                                                                                        |            |            | 7,457,043  |             |   |            | 11,922,950 | 
|                                                          | Sales tax payable                                                                                                                                                       |            |            | 1,422,716  |             |   |            | 634,497    | 
|                                                          | Accrued income taxes                                                                                                                                                    |            |            |           |             |   |            | 1,297,964  | 
|                                                          | Deferred income                                                                                                                                                         |            |            | 914,814    |             |   |            | 1,297,872  | 
|                                                          | Current maturities of capital lease obligations                                                                                                                         |            |            | 667,698    |             |   |            | 386,743    | 
|                                                          |                                                                                                                                                                         |            |            |            |             |  
|Total current liabilities                                 |                                                                                                                                                                         |            | 17,124,315 |            |             |   | 27,599,760 |           
|Obligations under capital leases, less current maturities |                                                                                                                                                                         |            | 679,414    |            |             |   | 247,671    |           
|Accrued rent liabilities                                  |                                                                                                                                                                         |            | 3,686,119  |            |             |   | 6,327,625  |           
|Deferred income taxes                                     |                                                                                                                                                                         |            | 806,323    |            |             |   | 189,044    |           
|Shareholders equity:                                     |                                                                                                                                                                         |            |            |            |             |   |            |           
|                                                          | Preferred stock, $0.0001 par value; 5,000,000 shares
    authorized, no shares outstanding                                                                              |            |            |           |             |   |            |           | 
|                                                          | Common stock, $0.0001 par value; 40,000,000 shares
    authorized, 5,102,481 and 6,300,479 shares outstanding at
    January 1, 2005 and January 28, 2006, respectively |            |            | 510        |             |   |            | 630        | 
|                                                          | Additional paid-in capital                                                                                                                                              |            |            | 25,623,630 |             |   |            | 34,252,066 | 
|                                                          | Retained earnings                                                                                                                                                       |            |            | 1,450,397  |             |   |            | 6,137,888  | 
|                                                          |                                                                                                                                                                         |            |            |            |             |  
|Total shareholders equity                                |                                                                                                                                                                         |            | 27,074,537 |            |             |   | 40,390,584 |           
|                                                          |                                                                                                                                                                         |            |            |            |             |  
|Total liabilities and shareholders equity                |                                                                                                                                                                         | $          | 49,370,708 |            |             | $ | 74,754,684 |           
|                                                          |                                                                                                                                                                         |            |            |            |             |  



F-2



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.





STATEMENTS OF OPERATIONS


|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |           |   |   |             |            |  
|-------------------------------------------------------- | ------------------------------------------ | ---------- | ----------- | ---------- | ---------- | - | ----------- | ---------------- | - | - | ----------- | --------- | - | - | ----------- | ---------- | -
|                                                         |                                            | Year Ended |             |            | Year Ended |   |             | Four Weeks Ended |   |   | Year Ended  |          
|                                                         |                                            | January 3, |             |            | January 1, |   |             | January 29,      |   |   | January 28, |          
|                                                         |                                            | 2004       |             |            | 2005       |   |             | 2005             |   |   | 2006        |          
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|Net sales                                                |                                            | $          | 148,223,553 |            |            | $ | 150,514,663 |                  |   | $ | 9,158,759   |           |   | $ | 194,780,125 |           
|Cost of merchandise sold, occupancy, and buying expenses |                                            |            | 103,692,775 |            |            |   | 104,481,049 |                  |   |   | 8,550,212   |           |   |   | 129,439,201 |           
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|Gross profit                                             |                                            |            | 44,530,778  |            |            |   | 46,033,614  |                  |   |   | 608,547     |           |   |   | 65,340,924  |           
|Operating expenses:                                      |                                            |            |             |            |            |   |             |                  |   |   |             |           |   |   |             |           
|                                                         | Selling                                    |            |             | 29,599,090 |            |   |             | 31,366,210       |   |   |             | 2,357,862 |   |   |             | 38,384,575 |  
|                                                         | General and administrative                 |            |             | 11,158,165 |            |   |             | 12,915,802       |   |   |             | 1,143,899 |   |   |             | 15,778,796 |  
|                                                         | Loss on disposal of property and equipment |            |             | 188,629    |            |   |             | 475,405          |   |   |             | 8,489     |   |   |             | 440,542    |  
|                                                         | Impairment of long-lived assets            |            |             | 127,133    |            |   |             | 202,801          |   |   |             | 20,494    |   |   |             | 20,252     |  
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|Operating income (loss)                                  |                                            |            | 3,457,761   |            |            |   | 1,073,396   |                  |   |   | (2,922,197  | )         |   |   | 10,716,759  |           
|Other income (expense):                                  |                                            |            |             |            |            |   |             |                  |   |   |             |           |   |   |             |           
|                                                         | Interest expense                           |            |             | (1,671,739 | )          |   |             | (936,607         | ) |   |             | (30,360   | ) |   |             | (426,617   | )
|                                                         | State income tax expense                   |            |             | (67,819    | )          |   |             |                 |   |   |             |          |   |   |             |           |  
|                                                         | Other income (expense), net                |            |             | (88,297    | )          |   |             | 328,744          |   |   |             | 17,356    |   |   |             | 212,430    |  
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|Income (loss) before income taxes                        |                                            |            | 1,629,906   |            |            |   | 465,533     |                  |   |   | (2,935,201  | )         |   |   | 10,502,572  |           
|Provision for (benefit from) income taxes                |                                            |            |            |            |            |   | (962,468    | )                |   |   | (1,069,402  | )         |   |   | 3,949,282   |           
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|Net income (loss)                                        |                                            | $          | 1,629,906   |            |            | $ | 1,428,001   |                  |   | $ | (1,865,799  | )         |   | $ | 6,553,290   |           
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|Net income (loss) per common share:                      |                                            |            |             |            |            |   |             |                  |   |   |             |           |   |   |             |           
|                                                         | Basic                                      |            | $           | 0.90       |            |   | $           | 0.31             |   |   | $           | (0.37     | ) |   | $           | 1.10       |  
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|                                                         | Diluted                                    |            | $           | 0.77       |            |   | $           | 0.28             |   |   | $           | (0.37     | ) |   | $           | 1.04       |  
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|Unaudited pro forma income tax information (Note 12):    |                                            |            |             |            |            |   |             |                  |   |   |             |           |   |   |             |           
|                                                         | Income before income taxes                 |            | $           | 1,697,725  |            |   |             |                  |   |   |             |           |   |   |             |            |  
|                                                         | Provision for income taxes                 |            |             | 657,758    |            |   |             |                  |   |   |             |           |   |   |             |            |  
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|Net income                                               |                                            | $          | 1,039,967   |            |            |   |             |                  |   |   |             |           |   |   |             |           
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|Net income per common share:                             |                                            |            |             |            |            |   |             |                  |   |   |             |           |   |   |             |           
|                                                         | Basic                                      |            | $           | 0.49       |            |   |             |                  |   |   |             |           |   |   |             |            |  
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          
|                                                         | Diluted                                    |            | $           | 0.47       |            |   |             |                  |   |   |             |           |   |   |             |            |  
|                                                         |                                            |            |             |            |            |   |             |                  |   |   |             |          



F-3



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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 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 |           
|                                                                                                                       | Net loss                                                    |              |           |                      |                      |   |            |            |  |  |           |           |   |         |          |       |              |              |            |           |  |   |          |        |  |   |            | (1,865,799 | ) |   |            | (1,865,799 | )
|                                                                                                                       |                                                             |              |           |                       |                      |   |            |             |  |  |           |            |   |         |          |        |              |              |            |            |  |   |          |        
|Balance at January 29, 2005                                                                                            |                                                             |              | 5,102,481 |                       |                      |   | 510        |             |  |  |          |            |   |         |         |        |              |              | 25,623,630 |            |  |   |         |         |  |   | (415,402   | )          |   |   | 25,208,738 |           
|Shares issued in connection with private placement of common
    stock and warrants                                    |                                                             |              | 1,000,000 |                       |                      |   | 100        |             |  |  |          |            |   |         |         |        |              |              | 7,538,319  |            |  |   |         |         |  |   |           |            |   |   | 7,538,419  |           
|Shares issued in connection exercise of stock warrants                                                                 |                                                             |              | 76,896    |                       |                      |   | 8          |             |  |  |          |            |   |         |         |        |              |              | 636,242    |            |  |   |         |         |  |   |           |            |   |   | 636,250    |           
|Shares issued in connection exercise of stock options                                                                  |                                                             |              | 121,102   |                       |                      |   | 12         |             |  |  |          |            |   |         |         |        |              |              | 128,953    |            |  |   |         |         |  |   |           |            |   |   | 128,965    |           
|Income tax benefit from exercise of stock options                                                                      |                                                             |              |          |                       |                      |   |           |             |  |  |          |            |   |         |         |        |              |              | 324,922    |            |  |   |         |         |  |   |           |            |   |   | 324,922    |           
|Net income                                                                                                             |                                                             |              |          |                       |                      |   |           |             |  |  |          |            |   |         |         |        |              |              |           |            |  |   |         |         |  |   | 6,553,290  |            |   |   | 6,553,290  |           
|                                                                                                                       |                                                             |              |           |                       |                      |   |            |             |  |  |           |            |   |         |          |        |              |              |            |            |  |   |          |        
|Balance at January 28, 2006                                                                                            |                                                             |              | 6,300,479 |                       |                      | $ | 630        |             |  |  |          |            |   | $       |         |        |              | $            | 34,252,066 |            |  | $ |         |         |  | $ | 6,137,888  |            |   | $ | 40,390,584 |           
|                                                                                                                       |                                                             |              |           |                       |                      |   |            |             |  |  |           |            |   |         |          |        |              |              |            |            |  |   |          |        



F-4



---



##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.





STATEMENTS OF CASH FLOWS


|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |          |            |   |             |           |            |  
|------------------------------------------------------------------------------------------------------ | ------------------------------------------------- | ----------------------------------------- | ---------- | --------- | ---------- | - | ----------- | ---------------- | ---------- | - | ----------- | -------- | ---------- | - | ----------- | --------- | ---------- | -
|                                                                                                       |                                                   | Year Ended                                |            |           | Year Ended |   |             | Four Weeks Ended |            |   | Year Ended  |         
|                                                                                                       |                                                   | January 3,                                |            |           | January 1, |   |             | January 29,      |            |   | January 28, |         
|                                                                                                       |                                                   | 2004                                      |            |           | 2005       |   |             | 2005             |            |   | 2006        |         
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         
|Operating activities                                                                                   |                                                   |                                           |            |           |            |   |             |                  |            |   |             |          |            |   |             |          
|Net income (loss)                                                                                      |                                                   | $                                         | 1,629,906  |           |            | $ | 1,428,001   |                  |            | $ | (1,865,799  | )        |            | $ | 6,553,290   |          
|Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities: |                                                   |                                           |            |           |            |   |             |                  |            |   |             |          |            |   |             |          
|                                                                                                       | Depreciation and amortization                     |                                           |            | 2,941,110 |            |   |             | 3,368,834        |            |   |             | 340,580  |            |   |             | 5,259,431 |           
|                                                                                                       | Deferred income taxes                             |                                           |            |          |            |   |             | (1,098,640       | )          |   |             | (971,913 | )          |   |             | 476,593   |           
|                                                                                                       | Stock-based compensation expense                  |                                           |            | 275,695   |            |   |             |                 |            |   |             |         |            |   |             |          |           
|                                                                                                       | Income tax benefit from exercise of stock options |                                           |            |          |            |   |             |                 |            |   |             |         |            |   |             | 324,922   |           
|                                                                                                       | Beneficial conversion of subordinated debentures  |                                           |            |          |            |   |             | 163,333          |            |   |             |         |            |   |             |          |           
|                                                                                                       | Amortization of debt discount                     |                                           |            | 12,447    |            |   |             | 9,820            |            |   |             |         |            |   |             |          |           
|                                                                                                       | Accretion of stock warrants                       |                                           |            | 150,640   |            |   |             | 12,500           |            |   |             |         |            |   |             |          |           
|                                                                                                       | Impairment of long-lived assets                   |                                           |            | 127,133   |            |   |             | 202,801          |            |   |             | 20,494   |            |   |             | 20,252    |           
|                                                                                                       | Loss on disposal of property and equipment        |                                           |            | 188,629   |            |   |             | 475,405          |            |   |             | 8,489    |            |   |             | 440,542   |           
|                                                                                                       | Changes in operating assets and liabilities:      |                                           |            |           |            |   |             |                  |            |   |             |          |            |   |             |           |           
|                                                                                                       |                                                   | Accounts receivable and other receivables |            |           | (243,609   | ) |             |                  | (645,441   | ) |             |          | 540,696    |   |             |           | (1,028,371 | )
|                                                                                                       |                                                   | Inventories                               |            |           | 1,499,346  |   |             |                  | (4,010,497 | ) |             |          | (1,011,602 | ) |             |           | (8,195,504 | )
|                                                                                                       |                                                   | Prepaid expenses and other current assets |            |           | (399,124   | ) |             |                  | (18,439    | ) |             |          | (132,409   | ) |             |           | (70,825    | )
|                                                                                                       |                                                   | Other assets                              |            |           | (434,068   | ) |             |                  | 510,369    |   |             |          | (23,473    | ) |             |           | (309,368   | )
|                                                                                                       |                                                   | Accounts payable                          |            |           | 562,712    |   |             |                  | 3,132,392  |   |             |          | 1,841,616  |   |             |           | 3,556,074  |  
|                                                                                                       |                                                   | Accrued expenses and deferred income      |            |           | 2,151,187  |   |             |                  | 2,156,394  |   |             |          | (2,562,060 | ) |             |           | 6,622,806  |  
|                                                                                                       |                                                   | Accrued income taxes                      |            |           |           |   |             |                  |           |   |             |          |           |   |             |           | 1,259,871  |  
|                                                                                                       |                                                   | Accrued rent liabilities                  |            |           | 452,912    |   |             |                  | 1,088,349  |   |             |          | 15,329     |   |             |           | 2,626,177  |  
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         
|Net cash provided by (used in) operating activities                                                    |                                                   |                                           | 8,914,916  |           |            |   | 6,775,181   |                  |            |   | (3,800,052  | )        |            |   | 17,535,890  |          
|Investing activities                                                                                   |                                                   |                                           |            |           |            |   |             |                  |            |   |             |          |            |   |             |          
|Purchase of property and equipment                                                                     |                                                   |                                           | (2,404,538 | )         |            |   | (11,409,438 | )                |            |   | (1,385,436  | )        |            |   | (22,816,172 | )        
|Proceeds from disposition of property and equipment                                                    |                                                   |                                           | 2,914      |           |            |   | 44,025      |                  |            |   | 2,175       |          |            |   | 122,494     |          
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         
|Net cash used in investing activities                                                                  |                                                   |                                           | (2,401,624 | )         |            |   | (11,365,413 | )                |            |   | (1,383,261  | )        |            |   | (22,693,678 | )        
|Financing activities                                                                                   |                                                   |                                           |            |           |            |   |             |                  |            |   |             |          |            |   |             |          
|Net repayments of revolving notes payable                                                              |                                                   |                                           | (4,873,744 | )         |            |   | (2,169,474  | )                |            |   |            |          |            |   |            |          
|Net proceeds from sale of common stock and warrants                                                    |                                                   |                                           |           |           |            |   | 15,530,993  |                  |            |   |            |          |            |   | 7,538,419   |          
|Net proceeds from exercise of stock options                                                            |                                                   |                                           |           |           |            |   |            |                  |            |   |            |          |            |   | 128,965     |          
|Net proceeds from exercise of stock warrants                                                           |                                                   |                                           |           |           |            |   |            |                  |            |   |            |          |            |   | 636,250     |          
|Payments to retire stock warrants                                                                      |                                                   |                                           |           |           |            |   | (850,000    | )                |            |   |            |          |            |   |            |          
|Principal payments under capital lease obligations                                                     |                                                   |                                           | (844,223   | )         |            |   | (947,332    | )                |            |   | (60,063     | )        |            |   | (652,635    | )        
|Principal payments of subordinated debt                                                                |                                                   |                                           | (219,901   | )         |            |   | (859,910    | )                |            |   |            |          |            |   |            |          
|Cash distributions to shareholders                                                                     |                                                   |                                           | (949       | )         |            |   | (13,385     | )                |            |   |            |          |            |   |            |          
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         
|Net cash provided by (used in) financing activities                                                    |                                                   |                                           | (5,938,817 | )         |            |   | 10,690,892  |                  |            |   | (60,063     | )        |            |   | 7,650,999   |          
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         
|Net increase (decrease) in cash and cash equivalents                                                   |                                                   |                                           | 574,475    |           |            |   | 6,100,660   |                  |            |   | (5,243,376  | )        |            |   | 2,493,211   |          
|Cash and cash equivalents at beginning of period                                                       |                                                   |                                           |           |           |            |   | 574,475     |                  |            |   | 6,675,135   |          |            |   | 1,431,759   |          
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         
|Cash and cash equivalents at end of period                                                             |                                                   | $                                         | 574,475    |           |            | $ | 6,675,135   |                  |            | $ | 1,431,759   |          |            | $ | 3,924,970   |          
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         
|Supplemental disclosures of cash flow information                                                      |                                                   |                                           |            |           |            |   |             |                  |            |   |             |          |            |   |             |          
|Cash paid for income taxes                                                                             |                                                   | $                                         | 31,126     |           |            | $ | 142,735     |                  |            | $ |            |          |            | $ | 1,852,368   |          
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         
|Cash paid for interest                                                                                 |                                                   | $                                         | 1,650,270  |           |            | $ | 776,580     |                  |            | $ | 39,619      |          |            | $ | 423,006     |          
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         
|Noncash investing and financing transactions                                                           |                                                   |                                           |            |           |            |   |             |                  |            |   |             |          |            |   |             |          
|Capital lease obligations                                                                              |                                                   | $                                         | 1,021,500  |           |            | $ |            |                  |            | $ |            |          |            | $ |            |          
|                                                                                                       |                                                   |                                           |            |           |            |   |             |                  |            |   |             |         



F-5



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.





NOTES TO FINANCIAL STATEMENTS


January 28, 2006




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



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





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

52-week




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





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





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





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

first-in,


F-6



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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-7



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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




|                                                                                                                  |             |            |           |      |            |            |           |             |  |   |             |       |   |   |           |      | 
|----------------------------------------------------------------------------------------------------------------- | ----------- | ---------- | --------- | ---- | ---------- | ---------- | --------- | ----------- |  | - | ----------- | ----- | - | - | --------- | ---- | 
|                                                                                                                  |             |            |           |      |            | Four Weeks |           |             | 
|                                                                                                                  |             | Year Ended |           |      | Year Ended |            |           | Ended       |  |   | Year Ended  |      
|                                                                                                                  |             | January 3, |           |      | January 1, |            |           | January 29, |  |   | January 28, |      
|                                                                                                                  |             | 2004       |           |      | 2005       |            |           | 2005        |  |   | 2006        |      
|                                                                                                                  |             |            |           |      |            |            |           |             |  |   |             |      
|Net income (loss) as reported                                                                                     |             | $          | 1,629,906 |      |            | $          | 1,428,001 |             |  | $ | (1,865,799  | )     |   | $ | 6,553,290 |     
|Add: Stock based compensation expense included in net income as
    reported                                      |             |            | 275,695   |      |            |            |          |             |  |   |            |       |   |   |          |     
|Deduct: Stock based compensation expense determined under fair
    value method, net of related income tax effect |             |            | (275,695  | )    |            |            | (366,030  | )           |  |   | (33,275     | )     |   |   | (544,135  | )   
|                                                                                                                  |             |            |           |      |            |            |           |             |  |   |             |      
|Pro forma net income (loss)                                                                                       |             | $          | 1,629,906 |      |            | $          | 1,061,971 |             |  | $ | (1,899,074  | )     |   | $ | 6,009,155 |     
|                                                                                                                  |             |            |           |      |            |            |           |             |  |   |             |      
|Basic earnings (loss) per share:                                                                                  |             |            |           |      |            |            |           |             |  |   |             |       |   |   |           |     
|                                                                                                                  | As reported |            | $         | 0.90 |            |            | $         | 0.31        |  |   | $           | (0.37 | ) |   | $         | 1.10 | 
|                                                                                                                  | Pro forma   |            | $         | 0.90 |            |            | $         | 0.23        |  |   | $           | (0.37 | ) |   | $         | 1.00 | 
|Diluted earnings (loss) per share:                                                                                |             |            |           |      |            |            |           |             |  |   |             |       |   |   |           |     
|                                                                                                                  | As reported |            | $         | 0.77 |            |            | $         | 0.28        |  |   | $           | (0.37 | ) |   | $         | 1.04 | 
|                                                                                                                  | Pro forma   |            | $         | 0.77 |            |            | $         | 0.21        |  |   | $           | (0.37 | ) |   | $         | 0.96 | 







F-8



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                                  
| | ---------------------------------
| | Advertising and Marketing Expense

point-of




| |                   
| | ------------------
| | Earnings per Share





| |             
| | ------------
| | Income Taxes





Accounting for Income
Taxes




| |                              
| | -----------------------------
| | Distributions to Shareholders





| |                
| | ---------------
| | Deferred Income

12-month


F-9



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)


12-month






| |                 
| | ----------------
| | Business Segment





| |                            
| | ---------------------------
| | Shipping and Handling Costs





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements





|   |                                               
|-- | ----------------------------------------------
|2. | Private Placement of Common Stock and Warrants



F-10



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




S-3






|   |                        
|-- | -----------------------
|3. | Initial Public Offering









F-11



---



##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)












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



|                                               |  |                  |                |  |            |   |            |             |  |   |            | 
|---------------------------------------------- |  | ---------------- | -------------- |  | ---------- | - | ---------- | ----------- |  | - | ---------- | 
|                                               |  | Estimated Useful |                |  | January 1, |   |            | January 28, | 
|                                               |  | Lives            |                |  | 2005       |   |            | 2006        | 
|                                               |  |                  |                |  |            |   |            |             | 
|Furniture, fixtures, and equipment             |  |                  | 3 to 8 years   |  |            | $ | 12,903,343 |             |  | $ | 20,249,066 | 
|Leasehold improvements                         |  |                  | up to 10 years |  |            |   | 14,266,954 |             |  |   | 25,073,799 | 
|Computer equipment and software                |  |                  | 3 years        |  |            |   | 3,006,633  |             |  |   | 3,913,903  | 
|Construction in progress                       |  |                  |                |  |            |   | 1,683,114  |             |  |   | 5,223,362  | 
|                                               |  |                  |                |  |            |   |            |             | 
|                                               |  |                  |                |  |            |   | 31,860,044 |             |  |   | 54,460,130 | 
|Less accumulated depreciation and amortization |  |                  |                |  |            |   | 11,145,833 |             |  |   | 15,758,768 | 
|                                               |  |                  |                |  |            |   |            |             | 
|                                               |  |                  |                |  |            | $ | 20,714,211 |             |  | $ | 38,701,362 | 
|                                               |  |                  |                |  |            |   |            |             | 



F-12



---



##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




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



|                                   |  |            |           |  |             |   |            | 
|---------------------------------- |  | ---------- | --------- |  | ----------- | - | ---------- | 
|                                   |  | January 1, |           |  | January 28, |  
|                                   |  | 2005       |           |  | 2006        |  
|                                   |  |            |           |  |             |  
|Employee compensation and benefits |  | $          | 2,716,204 |  |             | $ | 4,674,087  | 
|Accrued rent                       |  |            | 245,346   |  |             |   | 193,940    | 
|Other                              |  |            | 4,495,493 |  |             |   | 7,054,923  | 
|                                   |  |            |           |  |             |  
|                                   |  | $          | 7,457,043 |  |             | $ | 11,922,950 | 
|                                   |  |            |           |  |             |  



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







|                                                                                    |      |   |         |         | 
|----------------------------------------------------------------------------------- | ---- | - | ------- | ------- | 
|Fiscal year:                                                                        |      |   |         |        
|                                                                                    | 2006 |   | $       | 509,893 | 
|                                                                                    | 2007 |   |         | 236,983 | 
|                                                                                    | 2008 |   |         | 65,152  | 
|                                                                                    |      |   |        
|Total minimum lease payments                                                        |      |   | 812,028 |        
|Less amount representing interest                                                   |      |   | 177,614 |        
|                                                                                    |      |   |        
|Present value of minimum lease payments (including current
    portion of $386,743) |      | $ | 634,414 |        
|                                                                                    |      |   |        



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



F-13



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|             |            |   |             |            | 
|------------ | ---------- | - | ----------- | ---------- | 
|Fiscal year: |            |   |             |           
|             | 2006       |   | $           | 22,557,412 | 
|             | 2007       |   |             | 21,742,898 | 
|             | 2008       |   |             | 20,889,866 | 
|             | 2009       |   |             | 20,034,769 | 
|             | 2010       |   |             | 19,217,650 | 
|             | Thereafter |   |             | 70,038,851 | 
|             |            |   |            
|             |            | $ | 174,481,446 |           
|             |            |   |            



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







|   |                      
|-- | ---------------------
|9. | Employee Benefit Plan





|    |                              
|--- | -----------------------------
|10. | Commitments and Contingencies



F-14



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |             
|--- | ------------
|11. | Income Taxes







|                                                |                 |            |            |          |                  |   |            |             |   |   |           |           | 
|----------------------------------------------- | --------------- | ---------- | ---------- | -------- | ---------------- | - | ---------- | ----------- | - | - | --------- | --------- | 
|                                                |                 | Year Ended |            |          | Four Weeks Ended |   |            | Year Ended  |  
|                                                |                 | January 1, |            |          | January 29,      |   |            | January 28, |  
|                                                |                 | 2005       |            |          | 2005             |   |            | 2006        |  
|                                                |                 |            |            |          |                  |   |            |             |  
|Current:                                        |                 |            |            |          |                  |   |            |             |   |   |           |          
|                                                | Federal         |            | $          |         |                  |   | $          | (82,096     | ) |   | $         | 2,962,463 | 
|                                                | State and local |            |            | 136,172  |                  |   |            | (15,393     | ) |   |           | 548,319   | 
|                                                |                 |            |            |          |                  |   |            |             |  
|Total current                                   |                 |            | 136,172    |          |                  |   | (97,489    | )           |   |   | 3,510,782 |          
|                                                |                 |            |            |          |                  |   |            |             |  
|Deferred:                                       |                 |            |            |          |                  |   |            |             |   |   |           |          
|                                                | Federal         |            |            | (868,365 | )                |   |            | (818,453    | ) |   |           | 363,248   | 
|                                                | State and local |            |            | (230,275 | )                |   |            | (153,460    | ) |   |           | 75,252    | 
|                                                |                 |            |            |          |                  |   |            |             |  
|Total deferred                                  |                 |            | (1,098,640 | )        |                  |   | (971,913   | )           |   |   | 438,500   |          
|                                                |                 |            |            |          |                  |   |            |             |  
|Total provision for (benefit from) income taxes |                 | $          | (962,468   | )        |                  | $ | (1,069,402 | )           |   | $ | 3,949,282 |          
|                                                |                 |            |            |          |                  |   |            |             |  



|                                                          |  |            |            |   |                  |   |            |             |  |   |           |  
|--------------------------------------------------------- |  | ---------- | ---------- | - | ---------------- | - | ---------- | ----------- |  | - | --------- | -
|                                                          |  | Year Ended |            |   | Four Weeks Ended |   |            | Year Ended  | 
|                                                          |  | January 1, |            |   | January 29,      |   |            | January 28, | 
|                                                          |  | 2005       |            |   | 2005             |   |            | 2006        | 
|                                                          |  |            |            |   |                  |   |            |             | 
|Federal income tax at statutory rate                      |  | $          | 162,937    |   |                  | $ | (1,027,320 | )           |  | $ | 3,675,900 |  
|Impact of graduated Federal rates                         |  |            | (4,656     | ) |                  |   | 29,352     |             |  |   | (100,000  | )
|State and local income taxes, net of Federal income taxes |  |            | 14,787     |   |                  |   | (72,564    | )           |  |   | 415,086   |  
|Permanent differences                                     |  |            | 22,507     |   |                  |   | 1,130      |             |  |   | (41,704   | )
|Conversion from S Corporation to C Corporation status     |  |            | (1,158,043 | ) |                  |   |           |             |  |   |          |  
|                                                          |  |            |            |   |                  |   |            |             | 
|Total provision for (benefit from) income taxes           |  | $          | (962,468   | ) |                  | $ | (1,069,402 | )           |  | $ | 3,949,282 |  
|                                                          |  |            |            |   |                  |   |            |             | 



F-15



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|                               |                                 |            |           |           |             |   |           |           | 
|------------------------------ | ------------------------------- | ---------- | --------- | --------- | ----------- | - | --------- | --------- | 
|                               |                                 | January 1, |           |           | January 28, |  
|                               |                                 | 2005       |           |           | 2006        |  
|                               |                                 |            |           |           |             |  
|Deferred tax assets:           |                                 |            |           |           |             |   |           |          
|                               | Net operating loss carryforward |            | $         | 732,028   |             |   | $         |          | 
|                               | Vacation accrual                |            |           | 353,950   |             |   |           | 387,344   | 
|                               | Inventory                       |            |           | 818,985   |             |   |           | 1,593,904 | 
|                               | Stock-based compensation        |            |           | 426,634   |             |   |           | 267,835   | 
|                               | Accrued rent                    |            |           | 1,413,911 |             |   |           | 2,380,024 | 
|                               |                                 |            |           |           |             |  
|Total deferred tax assets      |                                 |            | 3,745,508 |           |             |   | 4,629,107 |          
|                               |                                 |            |           |           |             |  
|Deferred tax liabilities:      |                                 |            |           |           |             |   |           |          
|                               | Property and equipment          |            |           | 2,646,868 |             |   |           | 2,836,902 | 
|                               | Prepaid expenses                |            |           |          |             |   |           | 160,152   | 
|                               |                                 |            |           |           |             |  
|Total deferred tax liabilities |                                 |            | 2,646,868 |           |             |   | 2,997,054 |          
|                               |                                 |            |           |           |             |  
|Net deferred tax assets        |                                 | $          | 1,098,640 |           |             | $ | 1,632,053 |          
|                               |                                 |            |           |           |             |  



|    |                                   
|--- | ----------------------------------
|12. | Pro Forma Income Taxes  Unaudited







|                                      |  |            |           | 
|------------------------------------- |  | ---------- | --------- | 
|                                      |  | Year Ended |          
|                                      |  | January 3, |          
|                                      |  | 2004       |          
|                                      |  |            |          
|Historical income before income taxes |  | $          | 1,629,906 | 
|State income tax expense              |  |            | 67,819    | 
|                                      |  |            |          
|Pro forma income before income taxes  |  | $          | 1,697,725 | 
|                                      |  |            |          

F-16



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                               |                 |            |          |          |  
|------------------------------ | --------------- | ---------- | -------- | -------- | -
|                               |                 | Year Ended |         
|                               |                 | January 3, |         
|                               |                 | 2004       |         
|                               |                 |            |         
|Current:                       |                 |            |          |         
|                               | Federal         |            | $        | 801,763  |  
|                               | State and local |            |          | 94,325   |  
|                               |                 |            |         
|Total current                  |                 |            | 896,088  |         
|Deferred:                      |                 |            |          |         
|                               | Federal         |            |          | (213,243 | )
|                               | State and local |            |          | (25,087  | )
|                               |                 |            |         
|Total deferred (credit)        |                 |            | (238,330 | )       
|                               |                 |            |         
|Pro forma income tax provision |                 | $          | 657,758  |         
|                               |                 |            |         



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



|    |                        
|--- | -----------------------
|13. | Stock Purchase Warrants







F-17



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|    |                         
|--- | ------------------------
|14. | Stock-Based Compensation







|                               |           |             |         |          |                  |   |      |           |  |  |                  |          |   |   |      |      | 
|------------------------------ | --------- | ----------- | ------- | -------- | ---------------- | - | ---- | --------- |  |  | ---------------- | -------- | - | - | ---- | ---- | 
|                               |           | Outstanding |         |          | Exercisable      |  
|                               |           |             |         |          |                  |  
|                               |           | Number of   |         |          | Weighted Average |   |      | Number of |  |  | Weighted Average |         
|                               |           | Options     |         |          | Exercise Price   |   |      | Options   |  |  | Exercise Price   |         
|                               |           |             |         |          |                  |   |      |           |  |  |                  |         
|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 |     
|                               | Granted   |             |         | 205,200  |                  |   |      | 11.32     |  |  |                  |         |   |   |      |     | 
|                               | Vested    |             |         |         |                  |   |      |          |  |  |                  | 59,720   |   |   |      | 7.75 | 
|                               | Exercised |             |         | (121,102 | )                |   |      | 1.09      |  |  |                  | (121,102 | ) |   |      | 1.09 | 
|                               | Forfeited |             |         | (6,300   | )                |   |      | 8.32      |  |  |                  | (900     | ) |   |      | 7.75 | 
|                               |           |             |         |          |                  |   |      |           |  |  |                  |         
|Balance at January 28, 2006(1) |           |             | 646,390 |          |                  | $ | 6.91 |           |  |  | 207,710          |          |   | $ | 1.62 |     
|                               |           |             |         |          |                  |   |      |           |  |  |                  |         






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | There were no options granted, vested, exercised, or forfeited
    during the four week transition period ended January 29,
    2005.

F-18



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                         |  |                     |         |                  |                     |  |                  |                |  |   |                   |                  |  |                |         |  |  |   |      | 
|------------------------ |  | ------------------- | ------- | ---------------- | ------------------- |  | ---------------- | -------------- |  | - | ----------------- | ---------------- |  | -------------- | ------- |  |  | - | ---- | 
|                         |  | Options Outstanding |         |                  | Options Exercisable | 
|                         |  |                     |         |                  |                     | 
|                         |  |                     |         | Weighted-Average |                     |  |                  |                | 
|                         |  |                     |         | Contractual Life |                     |  | Weighted-Average |                |  |   |                   | Weighted-Average | 
|Range of Exercise Prices |  | Number of Options   |         |                  | (Years)             |  |                  | Exercise Price |  |   | Number of Options |                  |  | Exercise Price |        
|                         |  |                     |         |                  |                     |  |                  |                |  |   |                   |                  |  |                |        
|$0.01                    |  |                     | 164,740 |                  |                     |  | 8.0              |                |  | $ | 0.01              |                  |  |                | 164,740 |  |  | $ | 0.01 | 
|$7.75                    |  |                     | 277,450 |                  |                     |  | 8.0              |                |  | $ | 7.75              |                  |  |                | 42,970  |  |  | $ | 7.75 | 
|$9.30 - $13.25           |  |                     | 204,200 |                  |                     |  | 9.1              |                |  | $ | 11.32             |                  |  |                |        |  |  |   |     | 
|                         |  |                     |         |                  |                     |  |                  |                |  |   |                   |                  |  |                |        
|$0.01 - $13.25           |  |                     | 646,390 |                  |                     |  | 8.3              |                |  | $ | 6.91              |                  |  |                | 207,710 |  |  | $ | 1.62 | 
|                         |  |                     |         |                  |                     |  |                  |                |  |   |                   |                  |  |                |        







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



|                                                   |                               |            |           |           |            |   |           |                  |  |   |             |            |   |   |           |           | 
|-------------------------------------------------- | ----------------------------- | ---------- | --------- | --------- | ---------- | - | --------- | ---------------- |  | - | ----------- | ---------- | - | - | --------- | --------- | 
|                                                   |                               | Year Ended |           |           | Year Ended |   |           | Four Weeks Ended |  |   | Year Ended  |           
|                                                   |                               | January 3, |           |           | January 1, |   |           | January 29,      |  |   | January 28, |           
|                                                   |                               | 2004       |           |           | 2005       |   |           | 2005             |  |   | 2006        |           
|                                                   |                               |            |           |           |            |   |           |                  |  |   |             |           
|Numerator:                                         |                               |            |           |           |            |   |           |                  |  |   |             |            |   |   |           |          
|                                                   | Net income (loss)             |            | $         | 1,629,906 |            |   | $         | 1,428,001        |  |   | $           | (1,865,799 | ) |   | $         | 6,553,290 | 
|                                                   | Accretion on redeemable stock |            |           | (343,404  | )          |   |           | 22,396           |  |   |             |           |   |   |           |          | 
|                                                   |                               |            |           |           |            |   |           |                  |  |   |             |           
|Numerator for basic earnings (loss) per share      |                               |            | 1,286,502 |           |            |   | 1,450,397 |                  |  |   | (1,865,799  | )          |   |   | 6,553,290 |          
|Add accretion on redeemable stock                  |                               |            | 343,404   |           |            |   | (22,396   | )                |  |   |            |            |   |   |          |          
|Interest expense related to convertible debentures |                               |            |          |           |            |   | 26,387    |                  |  |   |            |            |   |   |          |          
|Interest expense related to warrants               |                               |            | 150,640   |           |            |   | 7,750     |                  |  |   |            |            |   |   |          |          
|                                                   |                               |            |           |           |            |   |           |                  |  |   |             |           
|Numerator for diluted earnings (loss) per share    |                               | $          | 1,780,546 |           |            | $ | 1,462,138 |                  |  | $ | (1,865,799  | )          |   | $ | 6,553,290 |          
|                                                   |                               |            |           |           |            |   |           |                  |  |   |             |           

F-19



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)


|                                                                                                                 |                                                                               |                         |           |           |            |   |           |                  |         |   |             |           |   |   |           |           |         | 
|---------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ----------------------- | --------- | --------- | ---------- | - | --------- | ---------------- | ------- | - | ----------- | --------- | - | - | --------- | --------- | ------- | 
|                                                                                                                 |                                                                               | Year Ended              |           |           | Year Ended |   |           | Four Weeks Ended |         |   | Year Ended  |          
|                                                                                                                 |                                                                               | January 3,              |           |           | January 1, |   |           | January 29,      |         |   | January 28, |          
|                                                                                                                 |                                                                               | 2004                    |           |           | 2005       |   |           | 2005             |         |   | 2006        |          
|                                                                                                                 |                                                                               |                         |           |           |            |   |           |                  |         |   |             |          
|Denominator:                                                                                                     |                                                                               |                         |           |           |            |   |           |                  |         |   |             |           |   |   |           |          
|                                                                                                                 | Denominator for basic earnings (loss) per share 
    weighted average shares |                         |           | 1,426,188 |            |   |           | 4,690,527        |         |   |             | 5,102,481 |   |   |           | 5,981,401 |        
|                                                                                                                 | Effect of dilutive securities:                                                |                         |           |           |            |   |           |                  |         |   |             |           |   |   |           |           |        
|                                                                                                                 |                                                                               | Stock options           |           |           | 258,218    |   |           |                  | 319,778 |   |             |           |  |   |           |           | 239,078 | 
|                                                                                                                 |                                                                               | Stock purchase warrants |           |           | 76,897     |   |           |                  | 12,254  |   |             |           |  |   |           |           | 58,466  | 
|                                                                                                                 |                                                                               | Convertible debentures  |           |           |           |   |           |                  | 68,205  |   |             |           |  |   |           |           |        | 
|                                                                                                                 |                                                                               | Redeemable securities   |           |           | 538,967    |   |           |                  | 56,837  |   |             |           |  |   |           |           |        | 
|                                                                                                                 |                                                                               |                         |           |           |            |   |           |                  |         |   |             |          
|Denominator for diluted earnings (loss) per share 
    adjusted weighted average shares and assumed conversions |                                                                               |                         | 2,300,270 |           |            |   | 5,147,601 |                  |         |   | 5,102,481   |           |   |   | 6,278,945 |          
|                                                                                                                 |                                                                               |                         |           |           |            |   |           |                  |         |   |             |          
|Basic earnings per share                                                                                         |                                                                               |                         |           |           |            |   |           |                  |         |   |             |           |   |   |           |          
|Net income (loss)                                                                                                |                                                                               | $                       | 1.14      |           |            | $ | 0.30      |                  |         | $ | (0.37       | )         |   | $ | 1.10      |          
|Accretion on Class A and Class B redeemable stock                                                                |                                                                               |                         | (0.24     | )         |            |   | 0.01      |                  |         |   |            |           |   |   |          |          
|                                                                                                                 |                                                                               |                         |           |           |            |   |           |                  |         |   |             |          
|Net income (loss) allocable to common shareholders                                                               |                                                                               | $                       | 0.90      |           |            | $ | 0.31      |                  |         | $ | (0.37       | )         |   | $ | 1.10      |          
|                                                                                                                 |                                                                               |                         |           |           |            |   |           |                  |         |   |             |          
|Diluted earnings per share                                                                                       |                                                                               |                         |           |           |            |   |           |                  |         |   |             |           |   |   |           |          
|Net income (loss)                                                                                                |                                                                               | $                       | 0.71      |           |            | $ | 0.28      |                  |         | $ | (0.37       | )         |   | $ | 1.04      |          
|Interest expense related to Class A stock purchase warrants
    and convertible debentures                       |                                                                               |                         | 0.06      |           |            |   |          |                  |         |   |            |           |   |   |          |          
|                                                                                                                 |                                                                               |                         |           |           |            |   |           |                  |         |   |             |          
|Net income (loss) allocable to common shareholders                                                               |                                                                               | $                       | 0.77      |           |            | $ | 0.28      |                  |         | $ | (0.37       | )         |   | $ | 1.04      |          
|                                                                                                                 |                                                                               |                         |           |           |            |   |           |                  |         |   |             |          



F-20



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                            |  |            |       |  
|----------------------------------------------------------- |  | ---------- | ----- | -
|                                                            |  | Year Ended |      
|                                                            |  | January 3, |      
|                                                            |  | 2004       |      
|                                                            |  |            |      
|Basic earnings per share                                    |  |            |       |  
|Net income                                                  |  | $          | 0.73  |  
|Accretion on Class A and Class B redeemable stock           |  |            | (0.24 | )
|                                                            |  |            |      
|Net income allocable to common shareholders                 |  | $          | 0.49  |  
|                                                            |  |            |      
|Diluted earnings per share                                  |  |            |       |  
|Net income                                                  |  | $          | 0.47  |  
|Interest expense related to Class A stock purchase warrants |  |            |      |  
|                                                            |  |            |      
|Net income allocable to common shareholders(1)              |  | $          | 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.



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



|                                                        |  |                 |           |  |                  |   |           |        |  |   |            |  |  |   |           | 
|------------------------------------------------------- |  | --------------- | --------- |  | ---------------- | - | --------- | ------ |  | - | ---------- |  |  | - | --------- | 
|                                                        |  | January 1, 2005 |           |  | January 28, 2006 |  
|                                                        |  |                 |           |  |                  |  
|                                                        |  | Carrying        |           |  |                  |   | Carrying  |        |  |  
|                                                        |  | Amount          |           |  | Fair Value       |   |           | Amount |  |   | Fair Value | 
|                                                        |  |                 |           |  |                  |   |           |        |  |   |            | 
|Cash and cash equivalents                               |  | $               | 6,675,135 |  |                  | $ | 6,675,135 |        |  | $ | 3,924,970  |  |  | $ | 3,924,970 | 
|Capital lease obligations, including current maturities |  |                 | 1,347,112 |  |                  |   | 1,686,600 |        |  |   | 634,414    |  |  |   | 760,150   | 





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



F-21



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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




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



|                  |                                   |                  |   |            |                |  |   |                 |  |  |                 |            |   |  |   |            | 
|----------------- | --------------------------------- | ---------------- | - | ---------- | -------------- |  | - | --------------- |  |  | --------------- | ---------- | - |  | - | ---------- | 
|                  |                                   | Thirteen Weeks   |   |            | Thirteen Weeks |  |   | Thirteen Weeks  |  |  | Thirteen Weeks  |           
|                  |                                   | Ended            |   |            | Ended          |  |   | Ended           |  |  | Ended           |           
|                  |                                   | April 3, 2004(1) |   |            | July 3, 2004   |  |   | October 2, 2004 |  |  | January 1, 2005 |           
|                  |                                   |                  |   |            |                |  |   |                 |  |  |                 |           
|Fiscal year 2004: |                                   |                  |   |            |                |  |   |                 |  |  |                 |            |   |  |   |           
|                  | Net sales                         |                  | $ | 34,305,013 |                |  | $ | 38,904,743      |  |  | $               | 31,589,495 |   |  | $ | 45,715,412 | 
|                  | Gross profit(2)                   |                  |   | 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       | 

|                  |                                   |                |   |            |                |  |   |                  |  |  |                  |            |   |  |   |            | 
|----------------- | --------------------------------- | -------------- | - | ---------- | -------------- |  | - | ---------------- |  |  | ---------------- | ---------- | - |  | - | ---------- | 
|                  |                                   | Thirteen Weeks |   |            | Thirteen Weeks |  |   | Thirteen Weeks   |  |  | Thirteen Weeks   |           
|                  |                                   | Ended          |   |            | Ended          |  |   | Ended            |  |  | Ended            |           
|                  |                                   | April 30, 2005 |   |            | July 30, 2005  |  |   | October 29, 2005 |  |  | January 28, 2006 |           
|                  |                                   |                |   |            |                |  |   |                  |  |  |                  |           
|Fiscal year 2005: |                                   |                |   |            |                |  |   |                  |  |  |                  |            |   |  |   |           
|                  | Net sales                         |                | $ | 44,943,180 |                |  | $ | 45,255,560       |  |  | $                | 43,242,897 |   |  | $ | 61,388,488 | 
|                  | Gross profit                      |                |   | 15,406,619 |                |  |   | 14,983,321       |  |  |                  | 11,840,353 |   |  |   | 23,110,631 | 
|                  | Net income (loss)                 |                |   | 1,851,138  |                |  |   | 1,223,619        |  |  |                  | (1,049,982 | ) |  |   | 4,528,515  | 
|                  | Basic earnings (loss) per share   |                |   | 0.35       |                |  |   | 0.20             |  |  |                  | (0.17      | ) |  |   | 0.73       | 
|                  | Diluted earnings (loss) per share |                |   | 0.33       |                |  |   | 0.19             |  |  |                  | (0.17      | ) |  |   | 0.68       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company recognized a nonrecurring income tax benefit of
    $1,158,043 in the first quarter of fiscal year 2004 as a result
    of converting from S Corporation to a C Corporation for tax
    purposes.                                                                                                                                                                                                                                                                             
|   
|(2) | Gross profit for the four quarters of fiscal year 2004, as
    previously reported in
    Form 10-K for the
    year ended January 1, 2005, have been adjusted to reflect
    the reclassification of certain warehouse expenses as discussed
    in Note 1  Reclassifications. The adjustments
    reduced gross profits by $74,897, $132,222, $183,567, and
    $223,498 for the periods ended April 3, 2004, July 3,
    2004, October 2, 2004, and January 1, 2005,
    respectively.

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