þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Missouri (State or other jurisdiction of incorporation or organization) |
43-0577980 (I.R.S. Employer Identification No.) |
2815 Scott Avenue, St. Louis, Missouri (Address of principal executive offices) |
63103 (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
2
July 31, | January 29, | July 30, | ||||||||||
2010 | 2011 | 2011 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 149,905 | $ | 146,263 | $ | 140,360 | ||||||
Accounts receivable |
1,407,330 | 1,484,809 | 1,165,604 | |||||||||
Inventories |
21,626,346 | 25,911,508 | 24,914,073 | |||||||||
Prepaid expenses and other current assets |
934,568 | 970,883 | 1,098,809 | |||||||||
Total current assets |
24,118,149 | 28,513,463 | 27,318,846 | |||||||||
Property and equipment, net |
22,029,961 | 18,405,166 | 16,928,139 | |||||||||
Other assets |
924,497 | 1,087,058 | 939,041 | |||||||||
Total assets |
$ | 47,072,607 | $ | 48,005,687 | $ | 45,186,026 | ||||||
Liabilities and shareholders deficit |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 16,904,303 | $ | 16,009,847 | $ | 19,109,761 | ||||||
Accrued expenses |
7,244,742 | 8,519,585 | 7,828,639 | |||||||||
Subordinated secured term loan |
1,550,049 | | | |||||||||
Subordinated convertible debentures current portion |
| | 1,000,000 | |||||||||
Sales tax payable |
914,007 | 1,122,024 | 909,740 | |||||||||
Deferred income |
1,143,402 | 1,120,444 | 873,750 | |||||||||
Revolving credit facility |
9,553,095 | 10,449,299 | 10,164,889 | |||||||||
Total current liabilities |
37,309,598 | 37,221,199 | 39,886,779 | |||||||||
Accrued noncurrent rent liabilities |
8,972,557 | 8,648,272 | 8,051,385 | |||||||||
Subordinated convertible debentures |
4,000,000 | 4,000,000 | 3,000,000 | |||||||||
Subordinated debenture |
| 4,123,327 | 4,153,266 | |||||||||
Shareholders deficit: |
||||||||||||
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, 7,384,056 shares outstanding at July 31,
2010, 9,228,916 shares outstanding at January 29, 2011
and 9,295,916 shares outstanding at July 30, 2011 |
739 | 923 | 930 | |||||||||
Additional paid-in capital |
39,455,857 | 40,443,888 | 40,623,715 | |||||||||
Accumulated deficit |
(42,666,144 | ) | (46,431,922 | ) | (50,530,049 | ) | ||||||
Total shareholders deficit |
(3,209,548 | ) | (5,987,111 | ) | (9,905,404 | ) | ||||||
Total liabilities and shareholders deficit |
$ | 47,072,607 | $ | 48,005,687 | $ | 45,186,026 | ||||||
3
Thirteen | Thirteen | Twenty-six | Twenty-six | |||||||||||||
Weeks | Weeks | Weeks | Weeks | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
July 31, 2010 | July 30, 2011 | July 31, 2010 | July 30, 2011 | |||||||||||||
Net sales |
$ | 43,293,127 | $ | 44,303,614 | $ | 86,817,163 | $ | 91,316,354 | ||||||||
Cost of merchandise sold, occupancy, and buying expenses |
31,360,215 | 31,333,392 | 64,147,955 | 66,088,948 | ||||||||||||
Gross profit |
11,932,912 | 12,970,222 | 22,669,208 | 25,227,406 | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling |
9,625,021 | 9,897,855 | 19,429,309 | 20,094,785 | ||||||||||||
General and administrative |
3,902,762 | 4,205,433 | 7,693,314 | 8,328,083 | ||||||||||||
Loss on disposal of property and equipment |
8,608 | 16,443 | 60,277 | 19,792 | ||||||||||||
Operating loss |
(1,603,479 | ) | (1,149,509 | ) | (4,513,692 | ) | (3,215,254 | ) | ||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(440,263 | ) | (444,744 | ) | (994,836 | ) | (905,519 | ) | ||||||||
Other, net |
20,304 | 12,793 | 34,273 | 22,646 | ||||||||||||
Loss before income taxes |
(2,023,438 | ) | (1,581,460 | ) | (5,474,255 | ) | (4,098,127 | ) | ||||||||
Income tax expense |
51,704 | | 51,704 | | ||||||||||||
Net loss |
$ | (2,075,142 | ) | $ | (1,581,460 | ) | $ | (5,525,959 | ) | $ | (4,098,127 | ) | ||||
Net loss per common share and diluted share |
$ | (0.28 | ) | $ | (0.17 | ) | $ | (0.75 | ) | $ | (0.44 | ) | ||||
4
Common Stock | ||||||||||||||||||||
Shares | Additional | |||||||||||||||||||
Issued and | Paid-In | Accumulated | ||||||||||||||||||
Outstanding | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance at January 29, 2011 |
9,228,916 | $ | 923 | $ | 40,443,888 | $ | (46,431,922 | ) | $ | (5,987,111 | ) | |||||||||
Stock-based compensation expense |
| | 179,827 | | 179,827 | |||||||||||||||
Issuance of restricted stock |
67,000 | 7 | | | 7 | |||||||||||||||
Net loss |
| | | (4,098,127 | ) | (4,098,127 | ) | |||||||||||||
Balance at July 30, 2011 |
9,295,916 | $ | 930 | $ | 40,623,715 | $ | (50,530,049 | ) | $ | (9,905,404 | ) | |||||||||
5
Twenty-six | Twenty-six | |||||||
Weeks Ended | Weeks Ended | |||||||
July 31, 2010 | July 30, 2011 | |||||||
Operating activities |
||||||||
Net loss |
$ | (5,525,959 | ) | $ | (4,098,127 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
2,961,383 | 2,563,425 | ||||||
Accretion of debt discount |
139,937 | 29,939 | ||||||
Stock-based compensation expense |
175,874 | 179,827 | ||||||
Loss on disposal of property and equipment |
60,278 | 19,792 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
143,396 | 319,212 | ||||||
Inventories |
(1,393,139 | ) | 997,435 | |||||
Prepaid expenses and other current assets |
300,219 | (127,926 | ) | |||||
Other assets |
(73,462 | ) | 148,017 | |||||
Accounts payable |
6,765,668 | 3,099,914 | ||||||
Accrued expenses and deferred income |
(536,973 | ) | (1,149,924 | ) | ||||
Accrued noncurrent rent liabilities |
(211,199 | ) | (596,887 | ) | ||||
Net cash provided by operating activities |
2,806,023 | 1,384,697 | ||||||
Investing activities |
||||||||
Purchase of property and equipment |
(460,767 | ) | (1,106,190 | ) | ||||
Proceeds from sale of property and equipment |
3,172 | | ||||||
Net cash used in investing activities |
(457,595 | ) | (1,106,190 | ) | ||||
Financing activities |
||||||||
Net repayments under revolving credit facility |
(978,592 | ) | (284,410 | ) | ||||
Proceeds from exercise of stock options |
384 | | ||||||
Principal payments on subordinated secured term loan |
(1,375,000 | ) | | |||||
Net cash used in financing activities |
(2,353,208 | ) | (284,410 | ) | ||||
Net decrease in cash and cash equivalents |
(4,780 | ) | (5,903 | ) | ||||
Cash and cash equivalents at beginning of period |
154,685 | 146,263 | ||||||
Cash and cash equivalents at end of period |
$ | 149,905 | $ | 140,360 | ||||
Supplemental disclosures of cash flow information |
||||||||
Cash paid for interest |
$ | 789,173 | $ | 832,085 | ||||
6
7
8
9
10
Thirteen | Thirteen | Twenty-six | Twenty-six | |||||||||||||
Weeks Ended | Weeks Ended | Weeks Ended | Weeks Ended | |||||||||||||
July 31, 2010 | July 30, 2011 | July 31, 2010 | July 30, 2011 | |||||||||||||
Current: |
||||||||||||||||
Federal |
$ | (425,208 | ) | $ | (596,993 | ) | $ | (1,345,940 | ) | $ | (1,336,085 | ) | ||||
State and local |
(44,314 | ) | (122,955 | ) | (243,729 | ) | (280,607 | ) | ||||||||
Total current |
(469,522 | ) | (719,948 | ) | (1,589,669 | ) | (1,616,692 | ) | ||||||||
Deferred: |
||||||||||||||||
Federal |
(211,275 | ) | 106,687 | (379,617 | ) | 54,012 | ||||||||||
State and local |
(38,414 | ) | 19,398 | (69,021 | ) | 9,820 | ||||||||||
Total deferred |
(249,689 | ) | 126,085 | (448,638 | ) | 63,832 | ||||||||||
Valuation allowance |
770,915 | 593,863 | 2,090,011 | 1,552,860 | ||||||||||||
Total income tax expense |
$ | 51,704 | $ | | $ | 51,704 | $ | | ||||||||
Thirteen | Thirteen | Twenty-six | Twenty-six | |||||||||||||
Weeks Ended | Weeks Ended | Weeks Ended | Weeks Ended | |||||||||||||
July 31, 2010 | July 30, 2011 | July 31, 2010 | July 30, 2011 | |||||||||||||
Federal income tax at statutory rate |
$ | (708,203 | ) | $ | (553,511 | ) | $ | (1,915,990 | ) | $ | (1,434,344 | ) | ||||
Impact of State NOL carryback refund restrictions |
51,704 | | 51,704 | | ||||||||||||
Impact of graduated Federal rates |
20,234 | 15,815 | 54,743 | 40,981 | ||||||||||||
State and local taxes, net of federal income taxes |
(89,490 | ) | (69,960 | ) | (242,099 | ) | (181,263 | ) | ||||||||
Change in valuation allowance |
770,915 | 593,863 | 2,090,012 | 1,552,860 | ||||||||||||
Permanent differences |
6,544 | 13,793 | 13,334 | 21,766 | ||||||||||||
Total income tax expense |
$ | 51,704 | $ | | $ | 51,704 | $ | | ||||||||
July 31, 2010 | January 29, 2011 | July 30, 2011 | ||||||||||
Deferred tax assets: |
||||||||||||
Net operating loss carryforward |
$ | 10,683,566 | $ | 10,775,110 | $ | 12,391,802 | ||||||
Vacation accrual |
405,885 | 405,473 | 414,833 | |||||||||
Inventory |
997,214 | 1,191,540 | 1,091,098 | |||||||||
Stock-based compensation |
1,185,109 | 1,258,512 | 1,328,645 | |||||||||
Accrued rent |
3,499,297 | 3,372,826 | 3,140,040 | |||||||||
Property and equipment |
1,833,074 | 2,842,665 | 3,097,084 | |||||||||
Total deferred tax assets |
18,604,145 | 19,846,126 | 21,463,502 | |||||||||
Deferred tax liabilities: |
||||||||||||
Prepaid expenses |
150,101 | 103,629 | 168,145 | |||||||||
Valuation allowance |
(18,454,044 | ) | (19,742,497 | ) | (21,295,357 | ) | ||||||
Net deferred tax assets |
$ | | $ | | $ | | ||||||
11
Twenty-six | Twenty-six | |||||||
Weeks Ended | Weeks Ended | |||||||
July 31, 2010 | July 30, 2011 | |||||||
Options granted |
227,000 | 75,000 | ||||||
Weighted-average fair value of options granted |
$ | 1.96 | $ | 0.63 | ||||
Assumptions |
||||||||
Dividends |
0 | % | 0 | % | ||||
Risk-free interest rate |
2.8 | % | 2.2 | % | ||||
Expected volatility |
97 | % | 99 | % | ||||
Expected option life |
6 years | 6 years |
Thirteen | Thirteen | Twenty-six | Twenty-six | |||||||||||||
Weeks | Weeks | Weeks | Weeks | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
July 31, 2010 | July 30, 2011 | July 31, 2010 | July 30, 2011 | |||||||||||||
Numerator: |
||||||||||||||||
Net loss |
$ | (2,075,142 | ) | $ | (1,581,460 | ) | $ | (5,525,959 | ) | $ | (4,098,127 | ) | ||||
Numerator for loss per share |
(2,075,142 | ) | (1,581,460 | ) | (5,525,959 | ) | (4,098,127 | ) | ||||||||
Interest expense related to convertible debentures |
| | | | ||||||||||||
Numerator for diluted loss per share |
$ | (2,075,142 | ) | $ | (1,581,460 | ) | $ | (5,525,959 | ) | $ | (4,098,127 | ) | ||||
Denominator: |
||||||||||||||||
Denominator for basic loss per share
weighted average shares |
7,384,056 | 9,295,916 | 7,383,566 | 9,278,982 | ||||||||||||
Effect of dilutive securities |
||||||||||||||||
Stock options |
| | | | ||||||||||||
Subordinated convertible debentures |
| | | | ||||||||||||
Denominator for diluted earnings (loss) per share
adjusted weighted average shares and assumed
conversions |
7,384,056 | 9,295,916 | 7,383,566 | 9,278,982 | ||||||||||||
12
July 31, 2010 | ||||||||
Carrying | ||||||||
Amount | Fair Value | |||||||
Cash and cash equivalents |
$ | 149,905 | $ | 149,905 | ||||
Revolving credit facility |
9,553,095 | 9,553,095 | ||||||
Subordinated secured term loan |
1,550,049 | 1,565,855 | ||||||
Subordinated convertible debentures |
4,000,000 | 2,799,363 |
January 29, 2011 | ||||||||
Carrying | ||||||||
Amount | Fair Value | |||||||
Cash and cash equivalents |
$ | 146,263 | $ | 146,263 | ||||
Revolving credit facility |
10,449,299 | 10,449,299 | ||||||
Subordinated debenture |
4,123,327 | 4,039,445 | ||||||
Subordinated convertible debentures |
4,000,000 | 3,052,837 |
July 30, 2011 | ||||||||
Carrying | ||||||||
Amount | Fair Value | |||||||
Cash and cash equivalents |
$ | 140,360 | $ | 140,360 | ||||
Revolving credit facility |
10,164,889 | 10,164,889 | ||||||
Subordinated debenture |
4,153,266 | 4,071,852 | ||||||
Subordinated convertible debentures |
4,000,000 | 2,815,412 |
13
14
15
16
Thirteen | Thirteen | Twenty- | Twenty- | |||||||||||||
Weeks | Weeks | six Weeks | six Weeks | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
July 31, | July 30, | July 31, | July 30, | |||||||||||||
2010 | 2011 | 2010 | 2011 | |||||||||||||
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of merchandise sold, occupancy and buying expense |
72.5 | 70.7 | 73.9 | 72.4 | ||||||||||||
Gross profit |
27.5 | 29.3 | 26.1 | 27.6 | ||||||||||||
Selling expense |
22.2 | 22.3 | 22.4 | 22.0 | ||||||||||||
General and administrative expense |
9.0 | 9.5 | 8.8 | 9.1 | ||||||||||||
Loss on disposal of property and equipment |
| | 0.1 | | ||||||||||||
Operating loss |
(3.7 | ) | (2.5 | ) | (5.2 | ) | (3.5 | ) | ||||||||
Interest expense |
(1.0 | ) | (1.0 | ) | (1.1 | ) | (1.0 | ) | ||||||||
Loss before income taxes |
(4.7 | ) | (3.5 | ) | (6.3 | ) | (4.5 | ) | ||||||||
Provision for income taxes |
0.1 | | 0.1 | | ||||||||||||
Net loss |
(4.8 | )% | (3.5 | )% | (6.4 | )% | (4.5 | )% | ||||||||
Thirteen | Thirteen | Twenty- | Twenty- | |||||||||||||
Weeks | Weeks | six Weeks | six Weeks | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
July 31, | July 30, | July 31, | July 30, | |||||||||||||
2010 | 2011 | 2010 | 2011 | |||||||||||||
Number of stores at beginning of period |
239 | 231 | 238 | 232 | ||||||||||||
Stores opened during period |
| 1 | 2 | 1 | ||||||||||||
Stores closed during period |
(2 | ) | | (3 | ) | (1 | ) | |||||||||
Number of stores at end of period |
237 | 232 | 237 | 232 | ||||||||||||
17
18
19
July 31, 2010 | January 29, 2011 | July 30, 2011 | ||||||||||
Cash |
$ | 149,905 | $ | 146,263 | $ | 140,360 | ||||||
Inventories |
21,626,346 | 25,911,508 | 24,914,073 | |||||||||
Total current assets |
24,118,149 | 28,513,463 | 27,318,846 | |||||||||
Property and equipment, net |
22,029,961 | 18,405,166 | 16,928,139 | |||||||||
Total assets |
47,072,607 | 48,005,687 | 45,186,026 | |||||||||
Accounts payable |
16,904,303 | 16,009,847 | 19,109,761 | |||||||||
Revolving credit facility |
9,553,095 | 10,449,299 | 10,164,889 | |||||||||
Subordinated convertible debentures |
4,000,000 | 4,000,000 | 4,000,000 | |||||||||
Subordinated debenture |
| 4,123,327 | 4,153,266 | |||||||||
Subordinated secured term loan |
1,550,049 | | | |||||||||
Total current liabilities |
37,309,598 | 37,211,199 | 39,886,779 | |||||||||
Total shareholders deficit |
(3,209,548 | ) | (5,987,111 | ) | (9,905,404 | ) | ||||||
Net working capital |
(13,191,449 | ) | (8,707,737 | ) | (12,567,933 | ) | ||||||
Unused borrowing capacity* |
1,054,189 | 3,060,582 | 434,661 |
* | as calculated under the terms of our revolving credit facility |
20
21
22
23
Payments due by Period | ||||||||||||||||||||
Less than | ||||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1 - 3 Years | 3 -5 Years | More than 5 Years | |||||||||||||||
Long-term debt obligations (1) |
$ | 14,434,667 | $ | 2,038,000 | $ | 3,708,334 | $ | 2,221,666 | $ | 6,466,667 | ||||||||||
Operating lease obligations (2) |
104,864,744 | 24,434,310 | 40,613,109 | 26,944,966 | 12,872,359 | |||||||||||||||
Purchase obligations (3) |
28,204,701 | 22,954,701 | 3,000,000 | 2,250,000 | | |||||||||||||||
Total |
$ | 147,504,112 | $ | 49,427,011 | $ | 47,321,443 | $ | 31,416,632 | $ | 19,339,026 | ||||||||||
(1) | Includes principal and interest payments on our subordinated convertible debentures and our subordinated debenture. | |
(2) | Includes minimum payment obligations related to our store leases. | |
(3) | Includes merchandise on order, minimum royalty payments related to the H by Halston license, and payment obligations relating to store construction and miscellaneous service contracts. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
24
25
BAKERS FOOTWEAR GROUP, INC. (Registrant) |
||||
By: | /s/ Peter A. Edison | |||
Peter A. Edison | ||||
Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) Bakers Footwear Group, Inc. (On behalf of the Registrant) | ||||
By: | /s/ Charles R. Daniel, III | |||
Charles R. Daniel, III | ||||
Executive Vice President and Chief Financial Officer, Controller, Treasurer, and Secretary (Principal Financial Officer and Principal Accounting Officer) |
26
Exhibit No. | Description | |
3.1
|
Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Companys 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 Companys 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
|
Second Amendment to Subordinated Convertible Debentures and Subordinated Convertible Debenture Purchase Agreement dated June 30, 2011. (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed on July 5, 2011 (File No. 000-50563)). | |
4.2
|
Amended and Restated Subordination Agreement dated June 30, 2011 by and among the Company, the Investors named therein and Bank of America, N.A. (incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed on July 5, 2011 (File No. 000-50563)). | |
10.1
|
Sixth Amendment to Second Amended and Restated Loan and Security Agreement dated June 30, 2011 by and among the Company and Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on July 5, 2011 (File No. 000-50563)). | |
11.1
|
Statement regarding computation of per share earnings (incorporated by reference from Note 9 to the unaudited interim financial statements included herein). | |
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). | |
101
|
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Balance Sheets at July 31, 2010, January 29, 2011, and July 30, 2011; (ii) Condensed Statements of Operations for the thirteen and twenty-six weeks ended July 31, 2010 and July 30, 2011;(iii) Condensed Statement of Shareholders Deficit; (iv)Condensed Statements of Cash Flows for the twenty-six weeks ended July 31, 2010 and July 30, 2011; and (v) Notes to Condensed Financial Statements for the thirteen and twenty-six weeks ended July 30, 2011. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, and shall not be deemed filed or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act or the Exchange Act, or otherwise subject to liability under those sections, except as shall be expressly set forth by specific reference in such filing. |
27
1. | I have reviewed this quarterly report on Form 10-Q of Bakers Footwear Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The Registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
September 13, 2011 | /s/ Peter A. Edison | |||
Peter A. Edison | ||||
Chairman of the Board, Chief Executive Officer and President Bakers Footwear Group, Inc. (Principal Executive Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Bakers Footwear Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The Registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
September 13, 2011 | /s/ Charles R. Daniel, III | |||
Charles R. Daniel, III | ||||
Executive Vice President and Chief Financial Officer, Controller, Treasurer, and Secretary (Principal Financial Officer and Principal Accounting Officer) |
Date: September 13, 2011 | /s/ Peter A. Edison | |||
Peter A. Edison | ||||
Chairman of the Board, Chief Executive Officer and President Bakers Footwear Group, Inc. | ||||
Date: September 13, 2011 | /s/ Charles R. Daniel, III | |||
Charles R. Daniel, III | ||||
Executive Vice President and Chief Financial Officer, Controller, Treasurer and Secretary Bakers Footwear Group, Inc. | ||||
Condensed Balance Sheets (Parenthetical) (USD $)
|
Jul. 30, 2011
|
Jan. 29, 2011
|
Jul. 31, 2010
|
---|---|---|---|
Shareholders' deficit: | Â | Â | Â |
Preferred stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 | 5,000,000 |
Preferred stock, shares outstanding | |||
Common stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 40,000,000 | 40,000,000 | 40,000,000 |
Common stock, shares outstanding | 9,295,916 | 9,228,916 | 7,384,056 |
Condensed Statements of Operations (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 30, 2011
|
Jul. 31, 2010
|
Jul. 30, 2011
|
Jul. 31, 2010
|
|
Condensed Statements of Operations [Abstract] | Â | Â | Â | Â |
Net sales | $ 44,303,614 | $ 43,293,127 | $ 91,316,354 | $ 86,817,163 |
Cost of merchandise sold, occupancy, and buying expenses | 31,333,392 | 31,360,215 | 66,088,948 | 64,147,955 |
Gross profit | 12,970,222 | 11,932,912 | 25,227,406 | 22,669,208 |
Operating expenses: | Â | Â | Â | Â |
Selling | 9,897,855 | 9,625,021 | 20,094,785 | 19,429,309 |
General and administrative | 4,205,433 | 3,902,762 | 8,328,083 | 7,693,314 |
Loss on disposal of property and equipment | 16,443 | 8,608 | 19,792 | 60,277 |
Operating loss | (1,149,509) | (1,603,479) | (3,215,254) | (4,513,692) |
Other income (expense): | Â | Â | Â | Â |
Interest expense | (444,744) | (440,263) | (905,519) | (994,836) |
Other, net | 12,793 | 20,304 | 22,646 | 34,273 |
Loss before income taxes | (1,581,460) | (2,023,438) | (4,098,127) | (5,474,255) |
Income tax expense | Â | 51,704 | Â | 51,704 |
Net loss | $ (1,581,460) | $ (2,075,142) | $ (4,098,127) | $ (5,525,959) |
Net loss per common share and diluted share | $ (0.17) | $ (0.28) | $ (0.44) | $ (0.75) |
Document and Entity Information (USD $)
|
6 Months Ended | ||
---|---|---|---|
Jul. 30, 2011
|
Sep. 03, 2011
|
Jul. 31, 2010
|
|
Document and Entity Information [Abstract] | Â | Â | Â |
Entity Registrant Name | BAKERS FOOTWEAR GROUP INC | Â | Â |
Entity Central Index Key | 0001171032 | Â | Â |
Document Type | 10-Q | Â | Â |
Document Period End Date | Jul. 30, 2011 | ||
Amendment Flag | false | Â | Â |
Document Fiscal Year Focus | 2012 | Â | Â |
Document Fiscal Period Focus | Q2 | Â | Â |
Current Fiscal Year End Date | --01-28 | Â | Â |
Entity Well-known Seasoned Issuer | No | Â | Â |
Entity Voluntary Filers | No | Â | Â |
Entity Current Reporting Status | Yes | Â | Â |
Entity Filer Category | Smaller Reporting Company | Â | Â |
Entity Public Float | Â | Â | $ 1,795,776 |
Entity Common Stock, Shares Outstanding | Â | 9,295,916 | Â |
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Subordinated Secured Term Loan
|
6 Months Ended |
---|---|
Jul. 30, 2011
|
|
Debt Disclosure [Abstract] | Â |
Subordinated Secured Term Loan |
6. Subordinated Secured Term Loan
Effective February 4, 2008, the Company consummated a $7.5 million three-year subordinated
secured term loan (the Loan) and issued 350,000 shares of the Company’s common stock as additional
consideration. Net proceeds to the Company after transaction costs were approximately $6.7 million.
The Company used the net proceeds to repay amounts owed under its senior revolving credit facility
and for working capital purposes. The Loan was secured by substantially all of the Company’s assets
and was subordinate to the Company’s revolving credit facility but had priority over the Company’s
subordinated convertible debentures. The Loan required 36 monthly payments of principal and
interest at an interest rate of 15% per annum and was fully repaid in January 2011.
|
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Fair Value of Financial Instruments
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 30, 2011
|
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Fair Value of Financial Instruments [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments |
11. Fair Value of Financial Instruments
The Company has adopted the provisions of ASC 825, Financial Instruments, related to interim
disclosures about fair value of financial instruments. This guidance requires disclosures regarding
fair value of financial instruments in interim financial statements, as well as in annual financial
statements.
The carrying amount of cash equivalents approximates fair value because of the short maturity
of those instruments. The carrying amount of the revolving credit facility approximates fair value
because the facility has a floating interest rate. The fair values of the subordinated secured term
loan and the subordinated convertible debentures have been estimated based on current rates
available to the Company for similar debt of the same maturity.
|
Liquidity
|
6 Months Ended |
---|---|
Jul. 30, 2011
|
|
Organization Consolidation and Presentation of Financial Statements [Abstract] | Â |
Liquidity |
2. Liquidity
The Company’s cash requirements are primarily for working capital, principal and interest
payments on debt obligations, and capital expenditures. Historically, these cash needs have been
met by cash flows from operations, borrowings under the Company’s revolving credit facility and
sales of securities. The balance on the revolving credit facility fluctuates throughout the year as
a result of seasonal working capital requirements and other uses of cash.
The Company’s losses in the first half of fiscal year 2011 and fiscal years after 2005 have
had a significant negative impact on the Company’s financial position and liquidity. As of July 30,
2011, the Company had negative working capital of $12.6 million, unused borrowing capacity under
its revolving credit facility of $0.4 million, and shareholders’ deficit of $9.9 million.
The Company’s business plan for fiscal year 2011 continues to be based on mid-single digit
increases in comparable store sales for the remainder of the year. Third quarter comparable store
sales through September 3, 2011 are up 2.5%. Based on the business plan, the Company expects to
maintain adequate liquidity for the remainder of fiscal year 2011. The business plan reflects
continued focus on inventory management and on timely promotional activity. The Company believes
that this focus on inventory should improve overall gross margin performance compared to fiscal
year 2010. The plan also includes targeted increases in selling, general and administrative
expenses to support the sales plan. The Company continues to work with its landlords and vendors
to arrange payment terms that are reflective of its seasonal cash flow patterns in order to manage
availability. The business plan for fiscal year 2011 reflects continued cash flow management but
does not indicate a return to profitability. However, there is no assurance that the Company will
achieve the sales, margin or cash flow contemplated in its business plan.
On May 28, 2010, the Company amended its revolving credit facility. The amendment extended the
maturity of the credit facility to May 28, 2013, modified the calculation of the borrowing base,
added a new minimum availability or adjusted EBITDA interest coverage ratio covenant, added an
obligation for the Company to extend the maturity of its subordinated convertible debentures, and
made other changes to the agreement. The Company incurred fees and expenses of approximately
$250,000 in connection with this amendment. The minimum availability or adjusted EBITDA interest
coverage ratio covenant requires that either the Company maintain unused availability greater than
20% of the calculated borrowing base or maintain a ratio of adjusted EBITDA to interest expense
(both as defined in the amendment) of no less than 1.0:1.0. The minimum availability covenant is
tested daily and, if not met, then the adjusted EBITDA covenant is tested on a rolling twelve month
basis. The adjusted EBITDA calculation is substantially similar to the calculation used previously
in the Company’s subordinated secured term loan. The Company did not meet these covenants for the
months of June and July 2010; however, this covenant violation was waived by the bank in connection
with the Debenture and Stock Purchase Agreement discussed below. During the third and fourth
quarters of fiscal year 2010 and the first and second quarters of 2011, the Company met the bank
covenant based on maintaining unused availability greater than 20% on a daily basis. The Company’s
business plan for fiscal year 2011 also anticipates meeting the bank covenant on this basis. The
Company continues to closely monitor its availability and continues to be constrained by its
limited unused borrowing capacity. As of September 3, 2011, the balance on the revolving line of credit was $11.7 million and unused borrowing
capacity in excess of the covenant commitment was $0.6 million.
Effective June 30, 2011, the Company amended its $4 million in aggregate principal amount of
9.5% subordinated convertible debentures, originally issued in June 2007. The amendments defer
payment of principal under the debentures. Originally, all $4 million in principal amount was
payable on June 30, 2012. Under the amendments, principal will be repaid in four equal annual
installments of $1 million beginning on June 30, 2012. The interest rate on the debentures was also
increased from 9.5% to 12% per annum. The amendments were consented to by the Company’s senior
lender pursuant to an amendment to the Company’s senior credit facility. The bank amendment
removed the covenant to refinance the subordinated convertible debentures and allows the Company to
make the $1 million required principal payment on June 30, 2012, provided that certain conditions
are met, including that the Company maintains at least a 1.0 to 1.0 ratio of adjusted EBITDA to its
interest expense for the 12 month period ending May 26, 2012, all as calculated pursuant to the
senior credit facility.
Based on the Company’s business plan for fiscal year 2011, the Company believes that it will
be able to comply with the minimum availability or adjusted EBITDA coverage ratio covenant in the
revolving credit facility. However, given the inherent volatility in the Company’s sales
performance, there is no assurance that the Company will be able to do so. In addition, in light of
the Company’s historical sales volatility and the current state of the economy, the Company
believes that there is a reasonable possibility that the Company may not be able to comply with its
financial covenants. Failure to comply would be a default under the terms of the Company’s
revolving credit facility and could result in the acceleration of all of the Company’s debt
obligations. If the Company is unable to comply with its financial covenants, it will be required
to seek one or more amendments or waivers from its lenders. The Company believes that it would be
able to obtain any required amendments or waivers, but can give no assurance that it would be able
to do so on favorable terms, if at all. If the Company is unable to obtain any required amendments
or waivers, the Company’s lenders would have the right to exercise remedies specified in the loan
agreements, including accelerating the repayment of debt obligations and taking collection action
against the Company. If such acceleration occurred, the Company currently has insufficient cash to
pay the amounts owed and would be forced to obtain alternative financing.
The Company continues to face considerable liquidity constraints. Although the Company
believes the business plan is achievable, should the Company fail to achieve the sales or gross
margin levels anticipated, or if the Company were to incur significant unplanned cash outlays, it
would become necessary for the Company to obtain additional sources of liquidity or make further
cost cuts to fund its operations. In recognition of existing liquidity constraints, the Company
continues to look for additional sources of capital at acceptable terms. However, there is no
assurance that the Company would be able to obtain such financing on favorable terms, if at all, or
to successfully further reduce costs in such a way that would continue to allow the Company to
operate its business.
The Company’s independent registered public accounting firm’s report issued in the Company’s
most recent Annual Report on Form 10-K included an explanatory paragraph describing the existence
of conditions that raise substantial doubt about the Company’s ability to continue as a going
concern, including recent losses and working capital deficiency. The financial statements do not
include any adjustments relating to the recoverability and classification of assets carrying
amounts or the amount of and classification of liabilities that may result should the Company be
unable to continue as a going concern.
|
Stock-Based Compensation
|
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Jul. 30, 2011
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Stock-Based Compensation [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation |
8. Stock-Based Compensation
During the twenty-six weeks ended July 30, 2011, the Company issued 75,000 nonqualified stock
options with a weighted average exercise price of $0.80. These options are exercisable in equal
annual installments of 20% on or after each of the first five years from the date of grant and
expire ten years from the date of grant. The Company uses the Black-Scholes option pricing model
to determine the fair value of stock options. During the twenty-six weeks ended July 30, 2011, the
Company also issued 67,000 shares of restricted common stock. Shares of restricted stock cliff vest
on the five year anniversary of the grant date. The value of the Company’s common stock on the date
the restricted shares were issued was $0.80.
The number of stock options granted, their grant-date weighted-average fair value, and the
significant assumptions used to determine fair-value during the twenty-six weeks ended July 31,
2010 and July 30, 2011, are as follows:
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Loss Per Share
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Loss Per Share [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss Per Share |
9. Loss Per Share
Basic loss per share is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per 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 and shares underlying the
subordinated convertible debentures.
The following table sets forth the components of the computation of basic and diluted earnings
(loss) per share for the periods indicated.
The diluted earnings per share calculation for the thirteen weeks ended July 30, 2011 excludes
33,724 incremental shares related to outstanding stock options and 518,299 incremental shares
underlying subordinated convertible debentures because they are antidilutive. The diluted earnings
per share calculation for the twenty-six weeks ended July 30, 2011 excludes 32,151 incremental
shares related to outstanding stock options and 518,299 incremental shares underlying subordinated
convertible debentures because they are antidilutive. The diluted earnings per share calculation
for the thirteen weeks ended July 31, 2010 excludes 34,230
incremental shares related to outstanding stock options and 481,348 incremental shares
underlying subordinated convertible debentures because they are antidilutive. The diluted earnings
per share calculation for the twenty-six weeks ended July 31, 2010 excludes 35,532 incremental
shares related to outstanding stock options and 481,348 incremental shares underlying subordinated
convertible debentures because they are antidilutive.
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Income Taxes
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Jul. 30, 2011
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Income Taxes [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
7. Income Taxes
In accordance with ASC 740, Income Taxes, the Company regularly assesses available positive
and negative evidence to determine whether it is more likely than not that its deferred tax asset
balances will be recovered from (a) reversals of deferred tax liabilities, (b) potential
utilization of net operating loss carrybacks, (c) tax planning strategies and (d) future taxable
income. There are significant restrictions on the consideration of future taxable income in
determining the realizability of deferred tax assets in situations where a company has experienced
a cumulative loss in recent years. When sufficient negative evidence exists that indicates that
full realization of deferred tax assets is no longer more likely than not, a valuation allowance is
established as necessary against the deferred tax assets, increasing the Company’s income tax
expense in the period that such conclusion is reached. Subsequently, the valuation allowance is
adjusted up or down as necessary to maintain coverage against the deferred tax assets. If, in the
future, sufficient positive evidence, such as a sustained return to profitability, arises that
would indicate that realization of deferred tax assets is once again more likely than not, any
existing valuation allowance would be reversed as appropriate, decreasing the Company’s income tax
expense in the period that such conclusion is reached.
Management believes it is more likely than not that it will not be able to realize benefits of
net deferred tax assets and therefore has established a valuation allowance against its net
deferred tax assets. As of July 30, 2011, the Company has increased the valuation allowance to
$21.3 million. The Company has scheduled the reversals of its deferred tax assets and deferred tax
liabilities and has concluded that based on the anticipated reversals a valuation allowance is
necessary only for the excess of deferred tax assets over deferred tax liabilities.
As of July 30, 2011, the Company has approximately $32.4 million of net operating loss
carryforwards that expire in 2022 available to offset future taxable income.
Significant components of the provision for (benefit from) income tax expense are as follows:
The differences between income tax expense at the statutory U.S. federal income tax rate of 35% and
the amount reported in the statements 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.
Components of the Company’s deferred tax assets and liabilities are as follows:
The Company’s federal income tax returns subsequent to the fiscal year ended January 1, 2005
remain open. As of July 30, 2011, the Company has not recorded any unrecognized tax benefits. The
Company’s policy, if it had unrecognized benefits, is to recognize accrued interest and penalties
related to unrecognized tax benefits as interest expense and other expense, respectively.
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Revolving Credit Facility
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6 Months Ended |
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Jul. 30, 2011
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Debt Disclosure [Abstract] | Â |
Revolving Credit Facility |
3. Revolving Credit Facility
The Company has a revolving credit agreement with a commercial bank (Bank). This agreement
calls for a maximum line of credit of $30,000,000 subject to the calculated borrowing base as
defined in the agreement, which is based primarily on the Company’s inventory level. The agreement
is secured by substantially all assets of the Company. The credit facility is senior to the
subordinated convertible debentures and the subordinated debenture. Interest is payable monthly at
the bank’s base rate plus 3.5%. An unused line fee of 0.75% per annum is payable monthly based on
the difference between the maximum line of credit and the average loan balance. The Company had
approximately $1,054,000, $3,060,000 and $435,000 (under the terms of the new minimum availability
covenant discussed below) of unused borrowing capacity under the revolving credit agreement based
upon the Company’s borrowing base calculation as of July 31, 2010, January 29, 2011, and July 30,
2011. The agreement has certain restrictive financial and other covenants relating to, among other
things, use of funds under the facility in accordance with the Company’s business plan, prohibiting
a change of control, including any person or group acquiring beneficial ownership of 40% or more of
the Company’s common stock or combined voting power (as defined in the credit facility),
maintaining a minimum availability, prohibiting new debt, restricting dividends and the repurchase
of the Company’s stock, and restricting certain acquisitions. The revolving credit agreement also
provides that the Company can elect to fix the interest rate on a designated portion of the
outstanding balance as set forth in the agreement based on the LIBOR (London Interbank Offered
Rate) plus 4.0%.
On May 28, 2010, the Company amended its revolving credit agreement. The amendment extended
the maturity of the credit facility from January 31, 2011 to May 28, 2013, modified the calculation
of the borrowing base, added a new minimum availability or adjusted EBITDA interest coverage ratio
covenant, added an obligation for the Company to extend the maturity of its subordinated
convertible debentures, and made other changes to the agreement. The Company incurred fees and
expenses of approximately $250,000 in connection with this amendment. The minimum availability or
adjusted EBITDA interest coverage ratio covenant requires that either the Company maintain unused
availability greater than 20% of the calculated borrowing base or maintain the ratio of the
Company’s adjusted EBITDA to its interest expense (both as defined in the amendment) of no less
than 1.0:1.0. The minimum availability covenant is tested daily and, if not met, then the adjusted
EBITDA covenant is tested on a rolling twelve month basis. The adjusted EBITDA calculation is
substantially similar to the calculation used previously in the Company’s subordinated secured term
loan.
In connection with an amendment to the Company’s subordinated convertible debentures, the
Company amended its revolving credit facility to allow the Company to make a required $1 million
principal payment in respect of the subordinated convertible debentures on June 30, 2012, provided
that certain conditions are met, including that the Company maintains at least a 1.0 to 1.0 ratio
of adjusted EBITDA to its interest expense for the 12 month period ending May 26, 2012, all as
calculated pursuant to the senior credit facility.
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Subordinated Debenture
|
6 Months Ended |
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Jul. 30, 2011
|
|
Debt Disclosure [Abstract] | Â |
Subordinated Debenture |
4. Subordinated Debenture
On August 26, 2010, the Company entered into a Debenture and Stock Purchase Agreement with
Steven Madden, Ltd. In connection with the agreement, the Company sold a subordinated debenture in
the principal amount of $5,000,000. Under the subordinated debenture, interest payments are
required to be paid quarterly at an interest rate of 11% per annum. The principal amount is
required to be paid in four annual installments commencing August 31, 2017 and the subordinated
debenture matures on August 31, 2020. The subordinated debenture is generally unsecured and
subordinate to the Company’s other indebtedness. As additional consideration, Steven Madden, Ltd.
also received 1,844,860 shares of the Company’s common stock, representing a 19.99% interest in the
Company on a post-closing basis. In connection with the transaction, the Company received aggregate
net proceeds of approximately $4.5 million after transaction and other costs.
The Company allocated the net proceeds received in connection with the subordinated debenture
and the related issuance of common stock based on the relative fair values of the debt and equity
components of the transaction. The fair value of the 1,844,860 shares of common stock issued was
estimated based on the actual market value of the Company’s common stock at the time of the
transaction net of a blockage discount based on the size of the issuance relative to average
trading volume in the Company’s common stock and a discount to reflect unregistered shares were
issued and could not be sold on the open market. The fair value of the $5.0 million principal
amount of debt was estimated based on publicly available data regarding the valuation of debt of
companies with comparable credit ratings. The relative fair values of the debt and equity
components were then prorated into the net proceeds received by the Company to determine the
amounts to be allocated to debt and equity. Other expenses incurred by the Company relative to this
transaction will be allocated either to debt issuance costs or as a reduction of additional paid-in
capital based on either specific identification of the particular expenses or on a pro rata basis.
The Company accretes the initial value of the debt to the nominal value of the debt over the term
of the loan using the effective interest method and recognizes such accretion as a component of
interest expense. Likewise, the Company amortizes the related debt issuance costs using the
effective interest method and recognizes this amortization as a component of interest expense.
|
Subordinated Convertible Debenture
|
6 Months Ended |
---|---|
Jul. 30, 2011
|
|
Debt Disclosure [Abstract] | Â |
Subordinated Convertible Debenture |
5. Subordinated Convertible Debentures
The Company completed a private placement of $4,000,000 in aggregate principal amount of
subordinated convertible debentures on June 26, 2007 and received net proceeds of approximately
$3.6 million. Originally, the debentures bore interest at a rate of 9.5% per annum, payable
semi-annually and the principal balance of $4,000,000 was payable in full on June 30, 2012. On June
30, 2011, the Company amended the debentures by changing the principal repayment terms to four
equal annual installments of $1 million beginning on June 30, 2012. The interest rate on the
debentures was also increased from 9.5% to 12% per annum. As discussed above, under the terms of
the Company’s revolving credit facility, the Company is allowed to make the $1 million principal
payment on June 30, 2012, which is due prior to expiration of the senior credit facility, provided
that certain conditions are met, including that the Company maintains at least a 1.0 to 1.0 ratio of adjusted EBITDA to its interest expense for
the 12 month period ending May 26, 2012, all as calculated pursuant to the senior credit facility.
The initial conversion price was $9.00 per share. The conversion price is subject to
anti-dilution and other adjustments, including a weighted average conversion price adjustment for
certain future issuances or deemed issuances of common stock at a lower price, subject to
limitations as required under rules of the Nasdaq Stock Market. The Company can redeem the unpaid
principal balance of the debentures if the closing price of the Company’s common stock is at least
$16.00 per share, subject to the adjustments and conditions in the debentures.
The debentures contain a weighted average conversion price adjustment that is triggered by
issuances or deemed issuances of the Company’s common stock. As a result of the issuance of shares
of common stock, effective August 26, 2010, the conversion price of the debentures decreased to
$6.76 with respect to $1 million in aggregate principal amount of debentures and to $8.10, the
minimum conversion price, with respect to $3 million in aggregate principal amount of debentures
held by directors and director affiliates.
The Company uses Financial Accounting Standards Board (FASB) guidance in Accounting Standards
Certification (ASC) 815, Derivatives and Hedging, related to determining whether an instrument (or
embedded feature) is indexed to an entity’s own stock and established a two-step process for making
such determination. The Company accounts separately for the fair value of the conversion feature of
the convertible debentures. As of July 31, 2010, January 29, 2011 and July 30, 2011, the Company
determined that the fair value of the conversion feature was de minimis. Significant future
increases in the value of the Company’s common stock would result in an increase in the fair value
of the conversion feature which would result in expense recognition in future periods.
|
Condensed Statements of Shareholders' Equity/Deficit (Unaudited) (USD $)
|
Total
|
Common Stock Shares Issued and Outstanding
|
Additional Paid-In Capital
|
Accumulated Deficit
|
---|---|---|---|---|
Balance at Jan. 29, 2011 | $ (5,987,111) | $ 923 | $ 40,443,888 | $ (46,431,922) |
Balance, shares at Jan. 29, 2011 | Â | 9,228,916 | Â | Â |
Stock-based compensation expense | 179,827 | Â | 179,827 | Â |
Issuance of restricted stock, shares | Â | 67,000 | Â | Â |
Issuance of restricted stock | 7 | 7 | Â | Â |
Net loss | (4,098,127) | Â | Â | (4,098,127) |
Balance at Jul. 30, 2011 | $ (9,905,404) | $ 930 | $ 40,623,715 | $ (50,530,049) |
Balance, shares at Jul. 30, 2011 | Â | 9,295,916 | Â | Â |
Basis of Presentation
|
6 Months Ended |
---|---|
Jul. 30, 2011
|
|
Organization Consolidation and Presentation of Financial Statements [Abstract] | Â |
Basis of Presentation |
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 the
fiscal year ended January 29, 2011. The Company has evaluated subsequent events through the date
the financial statements were issued and filed with the Securities and Exchange Commission (“SEC”)
and has made disclosures of all material subsequent events in the notes to the unaudited condensed
interim financial statements.
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Commitments and Contingencies
|
6 Months Ended |
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Jul. 30, 2011
|
|
Commitments and Contingencies [Abstract] | Â |
Commitments and Contingencies |
10. Commitments and Contingencies
The Company has certain contingent liabilities resulting from litigation and claims incident
to the ordinary course of business. Management believes the probable resolution of such
contingencies will not materially affect the financial position or results of operations of the
Company. The Company, in the ordinary course of store construction and remodeling, is subject to
mechanic’s liens on the unpaid balances of the individual construction contracts. The Company
obtains lien waivers from all contractors and subcontractors prior to or concurrent with making
final payments on such projects.
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