UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File Number: 000-50563

BAKERS FOOTWEAR GROUP, INC.

(314)621-0699

Not Applicable

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. [x] Yes     [  ] No.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes     [x] 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, 5,102,481 shares issued and outstanding as of May 14, 2004

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 3, 2004.

2. 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 $15,560,000 after deducting the underwriting discount and other expenses incurred in connection with the IPO.

     The Company used the proceeds from the IPO to repay the $4.9 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 working capital purposes, primarily for the purchase of inventory in the ordinary course of business and capital expenditures. Pending use of the remaining proceeds, the Company has invested in short-term, investment-grade, interest bearing instruments.

     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 become 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.

3. Income Taxes

     Effective January 4, 2004, the Company elected, by the consent of its shareholders, to revoke its status as an S corporation and become subject to taxation as a C corporation. Under the S Corporation provisions of the Internal Revenue Code, the individual shareholders include their pro rata portion of the Company’s taxable income in their personal income tax returns. Accordingly, through January 3, 2004,

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the Company was not subject to federal and certain state corporate income taxes. However, the Company was subject to income taxes in certain states in which it conducts business.

     The pro forma information on the accompanying statement of operations for the thirteen weeks ended April 5, 2003 has been adjusted to reflect a reduction in other income (expense) for these state income tax expenses, and is presented in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, as if the Company had been a C corporation during that period and thus subject to federal and state income taxes.

     As a result of this change in tax status, the Company recorded deferred tax assets and liabilities for the temporary differences between the book and tax basis of assets and liabilities at the time of conversion. The Company recognized a net benefit of $1,017,511 for the impact of these amounts as a component of the provision for income taxes for the thirteen weeks ended April 3, 2004.

     Significant components of the benefit from income taxes for the thirteen weeks ended April 3, 2004 are as follows:

     The differences between the income tax benefit at the statutory U.S. federal income tax rate of 34% and the amount reported in the statement of operations for the thirteen weeks ended April 3, 2004 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:

4. Stock-Based Compensation

     SFAS No. 123, Accounting for Stock-Based Compensation, establishes the use of the fair value-based method of accounting for all stock-based compensation arrangements. SFAS No. 123 permits companies to use the intrinsic value accounting method specified in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations to account for stock-based employee compensation arrangements. The Company uses the intrinsic value-based method to account for stock-based employee compensation arrangements and complies with the disclosure provisions of SFAS No. 123.

     The Company recorded compensation expense of $60,915 for the thirteen weeks ended April 5, 2003, which represents the difference between the estimated fair value of the stock on the date of the grant compared to the $0.01 exercise price per option. For pro forma purposes, had the compensation expense been determined in accordance with SFAS No. 123, net loss and net loss per share would not have been materially different from the amounts reported.

     Effective with the IPO, the Company issued options to purchase 304,500 shares of common stock with an exercise price of $7.75 per share to certain employees and directors. These options vest over five years and expire after ten years. Had compensation cost for all options been determined based on the grant date fair values of the options in accordance with SFAS No. 123, net income and earnings per share would have been reduced to the pro forma amounts indicated below:

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     No options were granted during the thirteen weeks ended April 5, 2003. The weighted-average fair value of options granted during the thirteen weeks ended April 3, 2004 was $4.68. The fair value of these options was estimated at grant date using the Black-Scholes option pricing model assuming no dividends, a risk-free interest rate of 3%, expected volatility of 64%, and expected option life of 6 years.

5. Earnings (Loss) Per Share

     Basic earning per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed using the weighted average number of common shares and potential dilutive securities that were outstanding during the period. Potential dilutive securities consist of outstanding stock options, warrants, and, through the effective date of the IPO, convertible debentures, and redeemable Class A and Class B stock.

     The following table presents a reconciliation of our basic and diluted weighted average common shares outstanding for the period.

     For the thirteen weeks ended April 5, 2003, 243,948 stock options, 76,897 stock purchase warrants, and 538,967 shares of redeemable securities were excluded from the computation of diluted

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earnings per share because they were anti-dilutive. For the thirteen weeks ended April 3, 2004, 216,000 stock purchase warrants were excluded from the computation of diluted earnings per share because they were anti-dilutive.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company’s unaudited condensed financial statements and notes thereto provided herein and the Company’s audited financial statements and notes thereto in our annual report on Form 10-K. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. The factors that might cause such a difference also include, but are not limited to, those discussed in our annual report on Form 10-K under “Item 1. Business – Cautionary Statements Regarding Forward-Looking Statements and Certain Risks.”

Overview

     We are a national, mall-based, specialty retailer of distinctive footwear and accessories targeting young women who demand quality fashion products. We feature private label and national brand dress, casual and sport shoes, boots, sandals and accessories. As of April 3, 2004, we operated 178 Bakers stores and 29 Wild Pair stores located in 36 states.

     During the first quarter of 2004, we completed our initial public offering generating net proceeds of $15.6 million, converted $6.8 million of convertible debt and redeemable securities into common stock, and repaid $4.1 million of debt obligations. This has significantly enhanced our financial position and will enable us to pursue our plans to increase the number of stores we operate and remodel existing stores into our new format. We anticipate that our new format stores will result in higher sales in future periods.

     During the first quarter of 2004, our operating results reflected the trend of increased demand for more fashion-oriented women’s footwear that started in the fall of 2003. For the first quarter of 2004 our sales increased 7.5% compared to the first quarter of 2003, and, more significantly, our gross profit increased 28%.

     For comparison purposes, we classify our stores as comparable or non-comparable. A new store’s sales are not included in comparable store sales until the thirteenth month of operation. Sales from remodeled stores are excluded from comparable store sales during the period of remodeling.

Critical Accounting Policies

     Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related Notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. These differences could be material to the financial statements.

     We believe that our application of accounting policies, and the estimates that are inherently required by these policies, are reasonable. We believe that the following significant accounting policies may involve a higher degree of judgment and complexity.

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Merchandise inventories

     Merchandise inventories are valued at the lower of cost or market using the first-in first-out retail inventory method. Permanent markdowns are recorded to reflect expected adjustments to retail prices in accordance with the retail inventory method. The process of determining our expected adjustments to retail prices requires significant judgment by management. Among other factors, management utilizes performance metrics to evaluate the quality and freshness of inventory, including the number of weeks of supply on hand, sell-through percentages and aging categories of inventory by selling season, to make its best estimate of the appropriate inventory markdowns. If market conditions are less favorable than those projected by management, additional inventory markdowns may be required.

Store closing and impairment charges

     Based on the criteria in SFAS No. 144, Accounting for the Disposal of Long-Lived Assets, long-lived assets to be “held and used” are reviewed for impairment when events or circumstances exist that indicate the carrying amount of those assets may not be recoverable. We regularly analyze the operating results of our stores and assess the viability of under-performing stores to determine whether they should be closed or whether their associated assets, including furniture, fixtures, equipment, and leasehold improvements, have been impaired. Asset impairment tests are performed at least annually, on a store-by-store basis. After allowing for an appropriate start-up period, unusual nonrecurring events, and favorable trends, fixed assets of stores indicated to be impaired are written down to fair value.

Deferred income taxes

     Through January 3, 2004, we were an S corporation under Subchapter S of the Internal Revenue Code and comparable state tax laws, and consequently were not subject to income taxes on our earnings in those jurisdictions, other than state franchise and net worth taxes. However, we were subject to income taxes in some states in which we conduct business which do not recognize S corporation status. Our S corporation status was terminated effective January 4, 2004. Beginning with the thirteen week period ended April 3, 2004 we are a C Corporation for Federal and state income tax purposes and, as a result, are subject to Federal and state income taxes.

     We calculate income taxes in accordance with SFAS No. 109 Accounting for Income Taxes, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between their carrying amounts for financial reporting purposes and income tax reporting purposes. Deferred tax assets and liabilities are measured using the tax rates in effect in the years when those temporary differences are expected to reverse. Inherent in the measurement of deferred taxes are certain judgments and interpretations of existing tax law and other published guidance as applied to our operations. No valuation allowance has been provided for the deferred tax assets because we generated taxable income in prior periods and we anticipate that future taxable income will be sufficient to allow us to fully recover the amount of net deferred tax assets.

Results of Operations

     The following table sets forth our operating results, expressed as a percentage of sales, for the periods indicated.

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     The following table sets forth our number of stores at the beginning and end of each period indicated and the number of stores opened, acquired and closed during each period indicated.

Thirteen Weeks Ended April 3, 2004 Compared to Thirteen Weeks Ended April 5, 2003

     Net sales. Net sales increased to $34.3 million for the thirteen weeks ended April 3, 2004 (first quarter 2004) from $31.9 million for the thirteen weeks ended April 5 2003 (first quarter 2003), an increase of $2.4 million. This increase resulted principally from higher average unit prices reflecting less discounting compared to the first quarter of 2003. Net sales for the first quarter of 2004 reflect the continuation of strong consumer demand for dress footwear that began in the fourth quarter of 2003 and compare favorably to the weak retail environment during the first quarter of 2003. Net sales increased despite operating thirteen fewer stores compared to the first quarter of 2003. Our comparable store sales for the first quarter of 2004 increased by 11.2% compared to the first quarter of 2003.

     Gross profit. Gross profit increased to $9.9 million in the first quarter of 2004 from $7.7 million in the first quarter of 2003. As a percentage of sales, gross profit increased to 28.8% in the first quarter of 2004 from 24.2% in the first quarter of 2003. This reflects significantly improved markdown experience resulting from the strong retail environment that started in the fourth quarter of 2003 and continued through the first quarter of 2004.

     Selling expense. Selling expense increased to $7.4 million in the first quarter of 2004 from $7.2 million in the first quarter of 2003, an increase of $200,000, but decreased as a percentage of sales to 21.7% from 22.6%. This increase was due primarily to higher salaries and commissions but reflects

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continued effective expense management demonstrated by the reduction of sales expense as a percentage of sales.

     General and administrative expense. General and administrative expense increased to $3.5 million in the first quarter of 2004 from $3.2 million in the first quarter of 2003, an increase of $300,000. The increase was due primarily to increased compensation expense compared to the first quarter of 2003.

     Income tax benefit. Effective January 4, 2004, we converted to a C corporation and became subject to federal and state income taxes. In accordance with SFAS 109, Accounting for Income Taxes, we have reflected the net impact of the temporary differences between the book and tax basis of our assets and liabilities as of the date of conversion as a component of our provision for income taxes for the period. This resulted in the recognition of a nonrecurring income tax benefit of $1.0 million for the first quarter of 2004. In addition, we recognized a tax benefit of $500,000 for the first quarter of 2004 related to the taxable loss incurred during the quarter. Because we were an S corporation during the first quarter of 2003 there was no comparable income tax benefit for that period. On a pro forma basis, had we been a C corporation for the first quarter of 2003, we would have had a tax benefit of $1.2 million for the period.

     Net income (loss). We had net income of $90,000 in the first quarter of 2004 compared to a net loss of $3.2 million in the first quarter of 2003. If we had been taxed as a C corporation for the first quarter of 2003, our net loss would have been $2.0 million for that period.

Seasonality and Quarterly Fluctuations

     Our operating results are subject to significant seasonal variations. Our quarterly results of operations have fluctuated, and are expected to continue to fluctuate in the future, as a result of these seasonal variances, in particular our principal selling seasons. We have five principal selling seasons: transition (post-holiday), Easter, back-to-school, fall and holiday. Sales and net income in our second and fourth quarters are typically much stronger than in our first and third quarters.

     In addition to our normal seasonal fluctuation, some events, in particular the Easter holiday, shift between fiscal quarters in some years due to the nature of our fiscal year. This shift will influence our quarterly comparable results. Easter falls in the second quarter of fiscal years 2003 and 2004.

     Quarterly comparisons may also be affected by the timing of sales and costs associated with opening of new stores, including acquisitions.

Liquidity and Capital Resources

     During the first quarter of 2004, we completed our initial public offering which generated net proceeds of $15.6 million. Our cash requirements are primarily for working capital, capital expenditures and principal payments on our capital lease obligations. Historically, these needs for cash have been met by cash flows from operations, borrowings under our revolving credit facility and sales of subordinated debt.

  At April 3, 2004, we had total assets of $41.0 million and shareholders’ equity of $26.1 million compared to total assets of $29.0 million and shareholders’ equity of $3.6 million at January 3, 2004, and compared to total assets of $33.6 million and a deficit in shareholders’ equity of $900,000 at April 5, 2003. At April 3, 2004, we had net working capital of $15.5 million, and $12.1 million of unused borrowing capacity under our revolving credit facility, based upon our borrowing base calculation, compared to negative net working capital of $800,000 and $5.6 million of unused borrowing capacity at

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January 3, 2004 and compared to negative net working capital of $5.6 million and $400,000 of unused borrowing capacity at April 5, 2003.

     The improvement in our financial position primarily relates to the proceeds from our initial public offering, the conversion of our subordinated debentures and redeemable Class A and Class B common stock into common stock, and our improved operating results.

     We anticipate that our cash flows from operations, borrowings under our revolving credit facility, and proceeds from our initial public offering will be sufficient for our operating cash requirements for at least the next 12 months and will allow us to further execute our business plan, including our planned expansion.

Operating activities

     For the first quarter of 2004, our net cash used by operating activities was $4.5 million compared to net cash used by operating activities of $7.0 million in the first quarter of 2003, an improvement of $2.5 million. The primary cause of this improvement was increased operating income in 2004. The primary use of cash for operating activities during the first quarter of 2004 and 2003 is the seasonal change in inventory which increased $5.2 million in the first quarter of 2004 and $3.5 million in the first quarter of 2003.

Investing activities

     Cash used in investing activities was $1.4 million in the first quarter of 2004 compared to $800,000 for the first quarter of 2003. During each quarter, cash used in investing activities consisted of capital expenditures for furniture, fixtures and leasehold improvements for both new and remodeled stores.

     We anticipate that our capital expenditures in fiscal year 2004, primarily related to new stores, store remodelings, distribution and general corporate activities, will be approximately $8.0 million to $9.0 million.

     We plan to open approximately 15 new stores in fiscal year 2004 and 30 to 35 new stores in fiscal year 2005. Net capital expenditures for a new store are expected to average approximately $200,000, including point of sale equipment. The average inventory investment, net of payables, for a new store is expected to range from approximately $45,000 to $75,000, depending on the size and sales expectation of the store and the timing of the new store opening. Pre-opening expenses, such as marketing, salaries, supplies and utilities are expensed as incurred.

     We plan to remodel approximately 17 to 21 stores in our new format in fiscal year 2004. Remodeling the average existing store into the new format is estimated to cost approximately $225,000. We also plan to perform minor remodeling at approximately ten stores in fiscal year 2004 at an average cost of $40,000 per store.

Financing activities

     On February 10, 2004, we consummated our initial public offering with the sale of 2,160,000 shares of common stock. On March 12, 2004, we sold an additional 324,000 shares of common stock in connection with the exercise, by the underwriters, of the full over-allotment option. All of the shares of common stock sold to the public were sold at a price of $7.75 per share. The aggregate gross proceeds from the shares of common stock and the warrants sold was approximately $19.3 million. The net

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proceeds to us from the offering were approximately $15.6 million. We used the net proceeds received from the initial public offering to repay $4.9 million on our revolving credit agreement, $0.9 million to redeem outstanding warrants, $0.9 million to repay subordinated debt, and $1.4 million for capital expenditures. We expect to use the remaining net proceeds for capital expenditures, working capital requirements and other general corporate purposes, including the purchase of inventory in the ordinary course of business. Pending use of the proceeds, we are investing in short-term, investment-grade interest bearing instruments.

     In connection with our IPO, $4.5 million of subordinated convertible debentures automatically converted into 653,331 shares of common stock at a fixed exercise price of $7.50 per share. Our Class A and Class B common stock was converted into shares of our new common stock on a one to one basis, excluding fractional shares, and $1.9 million of related redemption obligations were terminated. At April 3, 2004, we had 5,102,481 shares of common stock outstanding.

     We have a $25.0 million secured revolving credit facility with Fleet Retail Finance, Inc. Amounts borrowed under the facility bear interest at a rate equal to the base rate (as defined in the agreement) plus 0.75% per annum, which was equal to 4.75% per annum at January 3. 2004. The aggregate amount that we may borrow under the agreement at any time is established by a formula, which is based on our inventory level but cannot be greater than $25.0 million. The agreement is secured by substantially all of our assets. The credit facility’s maturity date is January 5, 2005. We repaid the outstanding balance on the credit facility during the first quarter of 2004 from the proceeds of our IPO.

     In connection with the closing of our IPO, 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 for the warrants. The warrant holders may exercise the warrants as to all or any lesser number of the underlying shares of common stock at any time during the four-year period commencing on February 10, 2005.

     Our ability to meet our current and anticipated operating requirements will depend on our future performance, which, in turn, will be subject to general economic conditions and financial, business and other factors, including factors beyond our control.

Off-Balance Sheet Arrangements

     At April 3, 2004 and April 5, 2003, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could otherwise have arisen if we had engaged in such relationships.

     Recent Accounting Pronouncements

     In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, relating to consolidation of variable interest entities (VIEs). The provisions of FIN 46 became effective immediately for VIEs created after January 31, 2003. The provisions of FIN 46 for VIEs created on or before January 31, 2003 were delayed until December 31, 2003 by FASB Staff Position No. FIN 46-6, Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, issued in October 2003. We were not required to consolidate any VIEs.

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     Effect of Inflation

     Overall, we do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented. We cannot give assurance, however, that our business will not be affected by inflation in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our earnings and cash flows may be subject to fluctuations due to changes in interest rates. Our financing arrangements include both fixed and variable rate debt in which changes in interest rates will impact the fixed and variable rate debt differently. A change in the interest rate of fixed rate debt will impact the fair value of the debt, whereas a change in the interest rate on the variable rate debt will impact interest expense and cash flows. Management does not believe that the risk associated with changing interest rates would have a material effect on our results of operations or financial condition.

ITEM 4. CONTROLS AND PROCEDURES

     Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the report that it files or submits under the Exchange Act.

     Internal control Over Financial Reporting: The company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s first fiscal quarter ended April 3, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the Company’s first fiscal quarter.

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BAKERS FOOTWEAR GROUP, INC.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

     In connection with the consummation of the initial public offering on February 10, 2004, the Company issued to Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc., the underwriters’ representatives for the initial public offering, or their designees, five year warrants to purchase up to 216,000 shares of the Company’s common stock, subject to antidilution adjustments, at an exercise price of $12.7875 per share of common stock. The representatives paid a purchase price of $0.0001 per warrant, an aggregate of $21.60. The warrant holders may exercise the warrants at any time during the four-year period commencing February 10, 2005 and ending February 10, 2009. In the foregoing transaction, the Company relied on the exemption from registration for private transactions not involving any public offering pursuant to Section 4(2) under the Securities Act of 1933 and/or the rules and regulations thereunder for transactions by an issuer not involving any public offering.

     The Company’s $4.9 million in aggregate principal amount of subordinated convertible debentures automatically converted in accordance with their terms into an aggregate of 653,331 shares of the Company’s common stock at a conversion price of $7.50 upon the consummation of the initial public offering. For the conversion of the debentures into shares of common stock the Company relied on the exemption(s) from registration relating to offerings that did not involve any public offering pursuant to Section 4(2) under the Securities Act of 1933 and/or an exchange by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange pursuant to Section 3(a)(9) under the Securities Act of 1933.

     Immediately prior to consummation of the initial public offering, the Company 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 completion of the initial public offering, in accordance with the then existing articles of incorporation, 1,693,244.92 shares of Class A common stock and 271,910 shares of Class B common stock automatically converted into an aggregate of 1,965,150 shares of common stock. The conversion was on 1.0-for-1.0 basis, excluding fractional shares. As a result, the Company now has one class of voting common stock issued and outstanding. In addition, holders of Class C options amended their option award agreements to purchase Class C common stock to cover shares of the new class of common stock. The Company relied on the exemption from registration under the Securities Act of 1933 pursuant to Section 3(a)(9) and/or the rules and regulations thereunder for securities exchanged by an issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.

     In all the foregoing transactions to the extent that the Company has relied on the exemption from registration for private transactions not involving any public offering pursuant to Section 4(2) under the Securities Act of 1933 and/or the rules and regulations thereunder for transactions by an issuer not involving any public offering, sales of the securities were without the use of an underwriter, and, to the extent applicable, the certificates evidencing the securities relating to the foregoing transactions bore restrictive legends permitting the transfer thereof only upon registration of such securities or an exemption under the Securities Act. The recipients of securities represented their intention to acquire the securities for investment purposes only and not with a view to or for distribution in connection with these

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transactions. Each security bore a restrictive legend and/or the recipient was a party to an agreement restricting transfer and had adequate access to information about us through such recipient’s relationship with us or through information provided to them.

Use of Proceeds

     On February 5, 2004, the Company commenced its initial public offering. On February 10, 2004, the Company consummated its initial public offering with the sale of 2,160,000 shares of common stock, excluding exercise of the underwriters’ over-allotment option. In connection with the Company’s initial public offering, the Company also sold 216,000 warrants to purchase shares of common stock to Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott and Stringfellow, Inc. as the representatives of the underwriters, or their designees. On March 12, 2004, the Company sold an additional 324,000 shares of common stock in connection with the exercise, by the underwriters, of the full over-allotment option. The public offering price of the common stock was $7.75 per share. We sold the warrants for $0.0001 per warrant.

     The shares of common stock sold in the offering and the warrants to purchase common stock were registered under the Securities Act of 1933, as amended, on two Registration Statements (Nos. 333-86332 and 333-112477) on Form S-1. The Securities and Exchange Commission declared Registration Statement No. 333-86332 effective on February 3, 2004. Registration Statement No. 333-112477 was effective upon filing on February 4, 2004 pursuant to Rule 462(b) under the Securities Act of 1933. All 2,160,000 shares of common stock sold to the public in the initial closing, plus all 324,000 shares of common stock covered by an over-allotment option granted to the underwriters were sold at a price of $7.75 per share. The warrants were sold to the representatives of the underwriters at a price of $0.0001 per warrant. Each warrant may be converted into one share of common stock at an exercise price $12.7875. The Registration Statements collectively registered 2,484,000 shares of common stock at a maximum aggregate offering price of $26,772,000, 216,000 warrants at a maximum aggregate offering price of $22, all of which common stock and warrants were sold in the offering, and 216,000 shares of common stock underlying the warrants at a maximum aggregate offering price of $2,851,000.

     The aggregate gross proceeds from the shares of common stock and the warrants sold were approximately $19.3 million. The net proceeds to the Company from the offering were approximately $15.6 million after deducting the underwriting discount of $1.9 million and $1.8 million of other expenses incurred in connection with the offering. A reasonable estimate for the amount of expenses incurred has been provided instead of the actual amount of expenses. None of such payments were to directors, officers, ten percent shareholders or affiliates of the issuer.

     As of April 3, 2004, the Company has used the net proceeds received from the initial public offering for the following purposes: $4.9 million to repay the balance on its revolving credit agreement to Fleet Retail Finance, Inc., $1.4 million to redeem outstanding warrants and a note payable in favor of Mississippi Valley Capital, LLC, $0.4 million to repay subordinated debt in favor of the Company’s prior Class B shareholders, and $1.4 million for the purchase of property and equipment, primarily store fixtures and leasehold improvements. Reasonable estimates for the amounts have been provided instead of the actual amounts. The credit agreement and the subordinated debt were secured, in part, by a personal guaranty of Peter Edison, the Company’s Chairman of the Board and Chief Executive Officer. Mississippi Valley Capital, LLC is a member managed limited liability company, of which Mr. Baur, one of the Company’s directors, is one of the two managers. In addition, Mr. Baur’s children are three of the four members. Mr. Baur is also a director of Marshall & Ilsley Corporation, which is a ten percent participant in the Company’s credit facility with Fleet Retail Finance, Inc.. Pending use of the remaining proceeds, the Company has invested in short-term, investment-grade interest bearing instruments.

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     The Company intends to use the remaining net proceeds from the offering to fund its planned capital expenditures in fiscal year 2004, primarily related to new stores, store remodelings, distribution and general corporate activities, of approximately $8.0 million to $9.0 million. The Company plans to open 15 new stores, all in the Company’s new format and remodel approximately 27 stores, including 17 to 21 in the new format, in fiscal year 2004. The Company expects to use any remaining net proceeds for working capital requirements and other general corporate purposes. Except as set forth above, none of proceeds were paid to directors, officers, ten percent shareholders or affiliates of the issuer. Our revolving credit facility prohibits the payment of dividends, except for common stock dividends.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

     The Company does not have any programs to repurchase shares of its common stock and no such repurchases were made during the thirteen weeks ended April 3, 2004.

Issuer Purchases of Equity Securities

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits: See Exhibit Index herein

     (b) Reports on Form 8-K: Pursuant to Items 7 and 12, on March 10, 2004, the Company filed a Report on Form 8-K dated March 10, 2004 to furnish the press release announcing its earnings per share and net sales for the fourth quarter and year end of fiscal 2003 and to furnish excerpts from the Company’s conference call webcast on March 4, 2004 relating to the fourth quarter and year end fiscal 2003 results, business developments and future outlook. Pursuant to items 7 and 9, on March 16, 2004, the Company filed a Report on Form 8-K dated March 16, 2004 to furnish the Company’s March 12, 2004 press release announcing the exercise of the full over-allotment option of 324,000 shares of common stock by the underwriters.

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BAKERS FOOTWEAR GROUP, INC.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed, on its behalf by the undersigned thereunto duly authorized.

Date: May 17, 2004

	BAKERS FOOTWEAR GROUP, INC. (Registrant)
		By:	/s/ Lawrence L. Spanley, Jr.
			Lawrence L. Spanley, Jr.
	Chief Financial Officer, Vice President- Finance, Treasurer, and Secretary (On behalf of the Registrant and as principal financial officer)

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EXHIBIT INDEX

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