UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File Number: 000-50563

BAKERS FOOTWEAR GROUP, INC.

(314)621-0699
(Registrant’s telephone number, including area code)

Bakers Footwear Group, Inc.’s former fiscal year ended January 1, 2005. On March 10, 2005, Bakers Footwear Group, Inc. changed

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.0001 par value, 6,102,481 shares issued and outstanding as of June 10, 2005

BAKERS FOOTWEAR GROUP, INC.
INDEX TO FORM 10-Q

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BAKERS FOOTWEAR GROUP, INC.

See accompanying notes.

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BAKERS FOOTWEAR GROUP, INC.

See accompanying notes.

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BAKERS FOOTWEAR GROUP, INC.

See accompanying notes.

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BAKERS FOOTWEAR GROUP, INC.

See accompanying notes.

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BAKERS FOOTWEAR GROUP, INC.

1. Basis of Presentation

     The accompanying unaudited condensed financial statements contain all adjustments that management believes are necessary to present fairly Bakers Footwear Group, Inc.’s (the Company’s) financial position, results of operations and cash flows for the periods presented. Such adjustments consist of normal recurring accruals. Certain information and disclosures normally included in notes to financial statements have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. The Company’s operations are subject to seasonal fluctuations and, consequently, operating results for interim periods are not necessarily indicative of the results that may be expected for other interim periods or for the full year. The condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto contained in our Annual Report on Form 10-K for fiscal year ended January 1, 2005.

2. Change in Fiscal Year

     On March 10, 2005, by a vote of its board of directors, the Company changed its fiscal year end to the Saturday closest to January 31. Previously the Company’s fiscal year ended four weeks earlier. As a result of this change, the Company had a four week transition period ended January 29, 2005. The unaudited results of operations and changes in shareholders’ equity and cash flows for this four week transition period are presented in the condensed financial statements. The audited results of operations and changes in shareholders’ equity and cash flows for the four week transition period will be included in the Company’s Annual Report on Form 10-K for the year ended January 28, 2006. For comparison purposes, we have presented the thirteen weeks ended May 1, 2004 as the first quarter of 2004.

3. Private Placement of Common Stock and Warrants

     Effective April 8, 2005, for $8,750,000 the Company sold to certain qualified investors 1,000,000 shares of common stock and warrants to purchase 250,000 shares of common stock at an exercise price of $10.18 per share through April 8, 2010. As of April 30, 2005, the net proceeds to the Company after placement fees and expenses were $7,559,524. The Company also issued warrants to purchase 125,000 shares of common stock at an exercise price of $10.18 through April 8, 2010 to the placement agent.

     In connection with this transaction, the Company entered into a registration rights agreement wherein the Company agreed to make the requisite SEC filings to register, achieve and subsequently maintain the effectiveness of the registration of the common stock sold and the common stock issuable upon exercise of the warrants sold in the private placement. The registration rights agreement is effective through April 8, 2008. Failure to register, achieve and maintain effectiveness of the registration through the term of the registration rights agreement will subject the Company to liquidated damages in the amount of 1% per month of the $8,750,000 gross proceeds of the private placement. On May 5, 2005, the Company filed Form S-3 registering for resale the common stock sold and the common stock underlying the warrants and placement agent warrants. The SEC declared the registration effective on May 25, 2005. The Company is now required to maintain the effectiveness of the registration, subject to certain exceptions, through April 8, 2008 in order to avoid paying liquidated damages. As of April 30, 2005, the maximum amount of liquidated damages that the Company could be required to pay was $2,887,500, which represents 33 potential monthly payments of $87,500.

     The Company has estimated the fair value of the 375,000 stock purchase warrants, including the placement agent warrants, issued in connection with the private placement using the Black-Scholes formula to be $2,160,000. Because the Company has no obligation to settle the warrants by any means other than through the issuance of shares of its common stock, the Company has included the fair value of the warrants as a component of shareholders’ equity.

4. Initial Public Offering

     On February 10, 2004, the Company completed its Initial Public Offering (IPO) and sold 2,160,000 shares of common stock at $7.75 per share. On March 12, 2004, the Company sold an additional 324,000 shares of common stock at $7.75 per share when the underwriters exercised their over-allotment option. The net proceeds to the Company were approximately $15,531,000 after deducting the underwriting discount and other expenses incurred in connection with the IPO.

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     The Company used the proceeds from the IPO to repay the $5.7 million balance on its revolving credit agreement, repay $859,910 of subordinated debt, and repurchase stock warrants for $850,000. The Company used the remaining proceeds for capital expenditures during 2004.

     Effective with the IPO, all shares of the Company’s existing Class A, Class B, and Class C common stock were exchanged for shares of new common stock on a one to one basis, excluding fractional shares, and the Company’s related repurchase obligations were terminated.

     The Company issued stock purchase warrants covering 216,000 shares of common stock with an exercise price of $12.7875 per share, subject to antidilution adjustments, to representatives of the underwriters. The warrants became exercisable on February 10, 2005 and expire on February 10, 2009.

     The subordinated convertible debentures were converted into 653,331 shares of common stock at a conversion rate of $7.50 per share. The Company recognized a beneficial conversion expense of $163,333 for the difference between the $7.75 IPO price and the $7.50 conversion price.

5. Income Taxes

     Significant components of the provision for income tax expense (benefit) are as follows:

     The differences between income tax expense (benefit) calculated at the statutory U.S. federal income tax rate of 34% and the amount reported in the statement of operations are as follows:

     Deferred income taxes arise from temporary differences in the recognition of income and expense for income tax purposes. Deferred income taxes were computed using the liability method and reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes.

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     Components of the Company’s deferred tax assets and liabilities are as follows: