FORM 10-Q

 

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

 

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except share and per share data)

 

 

 See accompanying notes to condensed consolidated financial statements. 

 

 

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands) 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

Notes to Condensed Consolidated Financial Statements

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Notice Regarding Forward-Looking Statements

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties, and we undertake no obligation to update these statements except as required by the federal securities laws. Our actual results may differ materially from the results discussed in the forward-looking statements. These risks and uncertainties include, without limitation, those detailed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020, as filed with the SEC, and include the following:

 

	●	our business, operations and financial results have been and will continue to be negatively affected by the COVID-19 pandemic, which presents uncertainty relating to its anticipated duration and scope and whether there will a second wave or periods of increases in the number of COVID-19 cases in areas in which we operate, as well the restrictions imposed by federal, state, and local governments in response to the pandemic;
	●	any sustained decline in general global economic conditions, caused by the COVID-19 pandemic or otherwise, could lead to disproportionately reduced consumer demand for our products, which represent relatively discretionary spending, and have an adverse effect on our liquidity and profitability;
	●	we depend upon the shopping malls and tourist locations in which we are located to attract guests to our stores and a decline in consumer traffic, or if such consumer traffic does not return to levels that we saw prior to the COVID-19 pandemic, could adversely affect our financial performance and profitability;
	●	in connection with the reopening of our stores, we have modified our interactive shopping experience in order to comply with social distancing and sanitation practices.  These modifications could have a negative impact on the appeal of our interactive shopping experience and reduce guest traffic to our stores. In addition, we are continuing to assess the impacts that such measures have on individual store performance due to the decreased volume of guests that may be able to enjoy our interactive shopping experience, and such reduced guest volume could adversely impact our ability to operate our stores profitably;
	●	we may experience store closures shopping malls and tourist locations and other impacts to our business resulting from civil disturbances;
	●	we believe the hands-on and interactive nature of our store and high touch service model result in guests forming an emotional connection with our brand, which in turn drives the success of our ecommerce platform; if we are not able to offer the same experience in the short and medium-term, it may adversely affect the value of our brand;
	●	birthdays and other special occasions have historically been a key driver for store traffic, and our guests’ willingness to hold such events at our stores may adversely affect store performance and our overall profitability;
	●	if we are unable to generate interest in and demand for our interactive retail experience and products, including being able to adjust that experience consistent with our guests' expectations as the general retail economy emerges from the restrictiosn imposed by the COVID-19 pandemic, and to otherwise identify and respond to consumer preferences in a timely manner, our sales, financial condition and profitability could be adversely affected;
	●	we may be unable to leverage the flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as our leases come up for renewal, and there may be other costs and risks relating to a brick and mortar retail store model such as a lack of available retail store sites on terms acceptable to us as a result;
	●	consumer interests change rapidly and our success depends on the ongoing effectiveness of our marketing and online initiatives to build consumer affinity for our brand and drive consumer demand for key products and services;
	●	we are subject to a number of risks related to disruptions, failures or security breaches of our information technology infrastructure. If we improperly obtain or are unable to protect our data or violate privacy or security laws such as the GDPR, the CCPA or the California Privacy Rights Act (if adopted), or expectations, we could be subject to liability as well as damage to our reputation;
	●	we may not be able to operate successfully if we lose key personnel, are unable to hire qualified additional personnel, or experience turnover of our management team;
	●	we are subject to risks associated with technology and digital operations;
	●	we may not be able to evolve our store locations over time to align with market trends, successfully diversify our store models and formats in accordance with our strategic goals or otherwise effectively manage our overall portfolio of stores which could adversely affect our ability to grow and could significantly harm our profitability;

 

 

	●	we rely on a few global supply chain vendors to supply substantially all of our merchandise, and significant price increases or any disruption in their ability to deliver merchandise could harm our ability to source products and supply inventory to our stores;
	●	our company-owned distribution center which services the majority of our stores in North America and our third-party distribution center providers used in the western United States and Europe may experience disruptions in their ability to support our stores or may operate inefficiently;
	●	our merchandise is manufactured by foreign manufacturers and we transact business in various foreign countries, and the availability and costs of our products, as well as our product pricing, may be negatively affected by risks associated with international manufacturing and trade, tariffs and foreign currency fluctuations;
	●	if we are unable to effectively manage our international franchises, attract new franchisees or if the laws relating to our international franchises change, our growth and profitability could be adversely affected and we could be exposed to additional liability;
	●	we may not be able to operate our international corporately-managed locations profitably;
	●	we may fail to renew, register or otherwise protect our trademarks or other intellectual property and may be sued by third parties for infringement or, misappropriation of their proprietary rights, which could be costly, distract our management and personnel and which could result in the diminution in value of our trademarks and other important intellectual property;
	●	we may suffer negative publicity or be sued if the manufacturers of our merchandise or of Build-A-Bear branded merchandise sold by our licensees ship any products that do not meet current safety standards or production requirements or if such products are recalled or cause injuries;
	●	we may suffer negative publicity or be sued if the manufacturers of our merchandise violate labor laws or engage in practices that consumers believe are unethical;
	●	our profitability could be adversely affected by fluctuations in petroleum products prices;

	●	our business may be adversely impacted at any time by a significant variety of competitive threats;
	●	we may suffer negative publicity or a decrease in sales or profitability if the products from other companies that we sell in our stores do not meet our quality standards or fail to achieve our sales expectations;

	●	we may be unsuccessful in engaging in various strategic transactions, which may negatively affect our financial condition and profitability;
	●	the duration of our plan to not utilize cash to resume share repurchases while we continue to take measure to preserve our cash position;
	●	fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline;
	●	the market price of our common stock is subject to volatility, which could in turn attract the interest of activist shareholders; and
	●	our certificate of incorporation and bylaws and Delaware law contain provisions that may prevent or frustrate attempts to replace or remove our current management by our stockholders, even if such replacement or removal may be in our stockholders’ best interests.

 

Overview

 

We are the only global company that offers an interactive “make your own stuffed animal” retail entertainment experience under the Build-A-Bear Workshop brand, in which guests participate in the stuffing, dressing, accessorizing and naming of their own teddy bears and other stuffed animals. As of May 2, 2020, we corporately managed 369 stores globally and had 80 internationally franchised stores under the Build-A-Bear Workshop brand. In addition to our stores, we sell products on our company-owned e-commerce sites and franchisee sites and through third parties under wholesale agreements.

 

We operate in three segments that share the same infrastructure, including management, systems, merchandising and marketing, and generate revenues as follows:

 

	•	Direct-to-Consumer (“DTC”) – Corporately-managed retail stores located in the U.S., Canada, Puerto Rico, the U.K., Ireland, Denmark and China and two e-commerce sites;
	•	Commercial – Transactions with other businesses, mainly comprised of wholesale product sales to third-party retailers and licensing our intellectual property, including entertainment properties, for third-party use; and
	•	International franchising – Royalties as well as product and fixture sales from other international operations under franchise agreements.

 

 

Selected financial data attributable to each segment for the thirteen weeks ended May 2, 2020 and May 4, 2019 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

 

COVID-19 Update

 

In response to COVID-19, the Company has taken the following actions:

 

	●	Reducing and deferring expenses
		•  Furlough of over 90% of its employees effective March 29, 2020;
		•  A 20% reduction in compensation for all employees not on temporary leave including each of its executive officers effective March 29, 2020;
		•  Elimination of the cash retainer for all non-employee directors serving on its Board of Directors for the fiscal 2020 first quarter;
		•  The delayed payment of 100% of the bonus earned by the company’s executive officers for fiscal 2019 performance and 80% of such bonuses earned by its other associates;
		•  The delayed payment of the Company’s contribution to its 401(k) plan; and
		•  Reduction in expenses and deferral of payments through extension of payment terms in many areas including its marketing programs. At quarter end, the Company had not paid April store rent and was in discussions with landlords regarding more favorable terms;
	●	Reducing its planned capital expenditures to maintenance levels
	●	Leveraging operating lease optionality with over 70% of its leases having a natural lease event over the next three years with approximately 120 locations having events before the end of fiscal 2020

 

Operational and Distribution Network Update due to COVID-19:

 

	●	Starting on March 18, 2020, the Company temporarily closed its corporately-managed retail locations in North America and Europe. Since that time, the Company has modified several key operational processes including:
		•  Modifying its popular in-store experience to accommodate various governmental social distancing recommendations, crowd limitation requirements and recommendations and employee and guest safety considerations; and
		•  Adding a “Workshop Wednesday” program that offers digital entertainment and activities for families staying at home, generating nearly 100 million media impressions when it was announced in April. The Company expects Workshop Wednesdays to expand in the future to include in-store events;

	●	The Company’s e-commerce site was fully operational throughout the quarter. Order processing times were extended as procedures were updated to enhance social distancing and sanitation practices at its distribution center. The Company has seen its digital demand continue to gain momentum with growth rates increasing to triple-digit levels following the store closures and has improved fulfillment times with expanded features including:
		•  Adding capabilities for select stores to supplement its e-commerce fulfillment with a “buy online, ship from store” omni-channel program; and
		•  Adding new queue technology and enabling a chat bot to better serve customers in-line for high-demand product launches;
	●	The Company’s supply chain had minimal disruption in the quarter with the Company able to receive deliveries in a timely manner;
	●	The Company’s franchisees ended the quarter with 80 locations across Africa, Asia, Australia, Mexico, the Middle East and South America. The majority of the locations were closed due to COVID-19 at quarter-end and have begun opening as permitted by law; and
	●	The Company’s third-party retail partners such as Great Wolf Resorts and Carnival Cruise Lines were closed due to COVID-19 at quarter-end and remain temporarily closed.

 

 

As disclosed in the “Liquidity and Capital Resources” section herein, as of May 2, 2020, we had total cash and cash equivalents of $21.9 million and no borrowings under our credit agreement. We believe that the above measures we have taken to increase and maintain our liquidity have provided us with sufficient cash flows to operate our business for at least the next 12 months.

 

In addition, because of our prior real estate strategy to shift our leases in North America to shorter term leases to provide flexibility in aligning stores with market trends, over 70% of our store leases having a natural lease event, such as lease renewals or terminations, over the next three years, with approximately 120 locations having such an event before the end of fiscal 2020. We plan to leverage the natural lease events to secure more favorable terms from our landlords.

 

Beginning in late May 2020, we began reopening selected store locations in the United States where permitted by federal, state and local directives. Separately, in the United Kingdom, the government has announced June 15, 2020 as the date for retailers to begin to reopen and we are planning accordingly. As of June 5, 2020, approximately 35 of our stores were open to the public, or approximately 11% of our total corporately managed store locations in the North America, and we expect to continue to reopen our temporarily closed stores through the remainder of the second quarter and into the third quarter, and expect that a majority of our store locations will be open by the end of the second quarter. Concurrent with the reopening of our stores, we have begun to bring employees back from furlough, and have implemented safety and cleaning protocols in the stores, as well as requiring the wearing of bear-themed masks by our store associates and implementing social distancing measures in our stores and guiding our guests in those measures in a fun, friendly and kid-centric way. Thus far the modifications have been well-received based on the positive feedback from both our associates and guests. We have seen varying levels of business recovery compared to the prior year at the stores that have reopened with tourist locations generally faring better than traditional mall sites.

 

The ultimate health and economic impact of the COVID-19 pandemic is highly uncertain, including the duration and severity of the COVID-19 outbreak, actions taken to contain its spread as well as its impact to consumer discretionary spending and the pace of economic recovery when the pandemic subsides. Therefore, we currently are not able to estimate the full impact of COVID-19 on our financial condition and future results of operations. In the near term, we expect that this situation will have an adverse effect on our reported results for second fiscal quarter of 2020 and possibly beyond, as we continue to reopen our stores. We will continue to actively monitor the effects that COVID-19 has on our business. A prolonged period of store closures, changes in customer behaviors and reductions of consumer discretionary spending would require us to continue to evaluate our business assumptions and estimates. Such conditions would likely result in lower future net sales and cash flow, which could lead to impairment of our store and other assets, as well as increase the risks associated with excess inventory. 

 

Retail Stores:

 

The table below sets forth the number of Build-A-Bear Workshop corporately-managed stores in North America, Europe and Asia for the periods presented:

 

		Thirteen weeks ended
		May 2, 2020																May 4, 2019
		North America				Europe				Asia				Total				North America				Europe				Asia				Total
Beginning of period			316				55				1				372				311				59				1				371
Opened			1				-				-				1				-				-				-				-
Closed			(4	)			0				-				(4	)			(4	)			(1	)			-				(5	)
End of period			313				55				1				369				307				58				1				366

 

As of May 2, 2020, 42% of our store base was in an updated Discovery design. We also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans. Future may include expansion into more non-traditional locations, including concourse format shops and by expansion in other locations outside traditional malls.

 

 

International Franchise Stores:

 

Our first franchisee location was opened in November 2003. All franchised stores have similar signage, store layout, merchandise characteristics and guest experience as our corporately-managed stores. As of May 2, 2020, we had nine master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering an aggregate of 10 countries.

 

The number of franchised stores opened and closed for the periods presented below are summarized as follows:

 

		Thirteen weeks ended
		May 2, 2020				May 4, 2019
Beginning of period			92				97
Opened			-				7
Closed			(12	)			(14	)
End of period			80				90

 

In the ordinary course of business, we anticipate signing additional master franchise agreements in the future and terminating other such agreements. We believe there is a total market potential for approximately 300 international stores outside of the U.S., Canada, the U.K., Ireland and Denmark. We source fixtures and other supplies for our franchisees from China which significantly reduces the capital and lowers the expenses required to open franchises. We are leveraging new formats that have been developed for our corporately-managed locations such as concourses and shop-in-shops with our franchisees.

 

 

Results of Operations

 

The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of total revenues, except where otherwise indicated. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales, commercial revenue, international franchising, respectively, as well as immaterial rounding:

 

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

		Thirteen weeks ended
		May 2,				May 4,
		2020				2019
Revenues:
Net retail sales			97.9	%			96.1	%
Commercial revenue			0.7				3.3
International franchising			1.4				0.7
Total revenues			100.0				100.0
Costs and expenses:
Cost of merchandise sold - retail (1)			73.1				54.8
Store asset impairment			10.6				0.0
Cost of merchandise sold - commercial (1)			42.0				45.9
Cost of merchandise sold - international franchising (1)			39.6				78.6
Total cost of merchandise sold			82.7				54.7
Consolidated gross profit			17.3				45.4
Selling, general and administrative			57.3				42.4
Interest (income) expense, net			(0.0	)			0.0
(Loss) income before income taxes			(40.0	)			2.9
Income tax expense			5.4				1.4
Net (loss) income			(45.5	)			1.4
Retail Gross Margin (2)			26.9	%			45.2	%

 

(1)	Cost of merchandise sold – retail is expressed as a percentage of net retail sales. Cost of merchandise sold – commercial is expressed as a percentage of commercial revenue. Cost of merchandise sold – international franchising is expressed as a percentage of international franchising revenue.
(2)	Retail gross margin represents net retail sales less cost of merchandise sold - retail; retail gross margin percentage represents retail gross margin divided by net retail sales.

 

 

Thirteen weeks ended May 2, 2020 compared to thirteen weeks ended May 4, 2019

 

Total revenues. Consolidated revenues decrease 44.7%, including a 45.6% decrease in North America, a 38.8% decrease in Europe, and a double digit increase in consolidated e-commerce sales. 

 

Net retail sales for the thirteen weeks ended May 2, 2020 were $45.6 million, compared to $81.0 million for the thirteen weeks ended May 4, 2019, a decrease of $35.4 million, or 43.7%. The components of this decrease are as follows (dollars in millions):

 

		Thirteen weeks ended
		May 2, 2020
Impact from:
Existing store and e-commerce sales		$	(32,513	)
New stores			707
Store closures			(2,312	)
Gift card breakage			(652	)
Foreign currency translation			(523	)
Deferred revenue estimates			(108	)
Total Change		$	(35,401	)

 

The retail revenue decrease was the result of the closure of all of our corporately managed stores beginning on March 18, 2020.

 

Commercial revenue was $0.3 million for the thirteen weeks ended May 2, 2020 compared to $2.8 million for the thirteen weeks ended May 4, 2019. The $2.5 million decrease is the result of decreased sales volume of new inventory from our commercial customers as a result of COVID-19, which we believe is  principally because of closure of third-party reatil locations serviced by our commercial customers.

 

International franchising revenue was $0.6 million for the thirteen weeks ended May 2, 2020 compared to $0.6 million for the thirteen weeks ended May 4, 2019.

 

Retail gross margin. Retail gross margin dollars decreased $24.3 million to $12.3 million compared to the thirteen weeks ended May 4, 2019. The retail gross margin rate decreased 18.3% basis points primarily driven by fixed occupancy costs recorded through the end of the first quarter despite store closures beginning on March 18, 2020.

 

Impairment of long-live assets, including right-of-use assets. As a result of the COVID-19 pandemic, we experienced lower than projected revenues and identified indicators of impairment for our store fleet. We performed undiscounted cash flow analyses over the long-lived assets and right-of-use assets and determined that certain stores had long-lived and right-of-use assets with carrying values that exceeded their estimated undiscounted cash flows. We estimated fair values of these long-lived assets based on our discounted cash flows or market rent assessments. Our analysis indicated that the carrying values of our long-lived assets exceeded their respective fair values. As a result, we recognized an impairment charge of $4.8 million for the thirteen weeks ended May 2, 2020, with approximately $2.4 million for right-of-use operating lease assets and $2.4 million for fixed assets including leasehold improvements and fixtures, furniture and fixtures, and machinery and equipment. These impairment charges were primarily driven by lower than projected revenues and the effect of store closures as a result of the COVID-19 pandemic. The majority of the impairment was recorded for assets associated with stores in North America. For the thirteen weeks ended May 4, 2019, the Company did not record any impairment charges.

 

Selling, general and administrative. Selling, general and administrative expenses were $26.7 million for the thirteen weeks ended May 2, 2020, a decrease of $9.1 million compared to the thirteen weeks ended May 4, 2019. The decline was primarily due to lower labor costs resulting from store closures and employee furloughs due to the COVID-19 pandemic.

 

Interest expense (income), net. Interest expense was $3,000 for the thirteen weeks ended May 2, 2020 compared to interest income of $20,000 for the thirteen weeks ended May 4, 2019.

 

 

Provision for income taxes. Income tax expense was $2.5 million with a tax rate of (13.6%) for the thirteen weeks ended May 2, 2020 as compared to income tax expense of $1.2 million with a tax rate of 50.5% for the thirteen weeks ended May 4, 2019. In the first quarter of fiscal 2020, the effective tax rate differed from the statutory rate of 21% primarily due to the $3.3 million valuation allowance recorded on the beginning balance of the net deferred tax assets in certain jurisdictions offset by $0.8 million of benefit as a result of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. In addition, no tax benefit was recorded on the current period pretax loss as a full valuation allowance has now been recorded globally.  In the first quarter of fiscal 2019, the effective tax rate differed from the statutory rate of 21% primarily due to the valuation allowance being recorded in certain foreign loss companies and the $0.2 million tax impact of equity awards vesting. 

 

Seasonality and Quarterly Results

 

Our operating results for one period may not be indicative of results for other periods, and may fluctuate significantly because of a variety of factors, including, but not limited to: (1) changes in general economic conditions (including as a result of the COVID-19 pandemic and tariffs) and consumer spending patterns; (2) increases or decreases in our existing store and e-commerce sales; (3) fluctuations in the profitability of our stores; (4) the timing and frequency of the sales of licensed products tied to major theatrical releases, our marketing initiatives, including national media and other public relations events; (5) changes in foreign currency exchange rates; (6) the timing of our store openings and closings and related expenses; (7) changes in consumer preferences; (8) the effectiveness of our inventory management; (9) the actions of our competitors or mall anchors and co-tenants; (10) seasonal shopping patterns and holiday and vacation schedules; (11) disruptions in store operations due to civil unrest; and (12) weather conditions.

 

The timing of store closures, remodels and openings may result in fluctuations in quarterly results based on the revenues and expenses associated with each store location. Expenses related to store closings are typically incurred in stages: when the decision is made to close the store typically associated with a lease event such as an expiration or lease triggered clause; when the closure is communicated to store associates; and at the time of closure. We typically incur most preopening costs for a new store in the three months immediately preceding the store’s opening.

 

Because our retail operations have toy products as part of our revenue model, our sales are highest in our fourth quarter. The timing of holidays and school vacations can impact our quarterly results. We cannot provide assurance that this will continue to be the case. In addition, for accounting purposes, the quarters of each fiscal year consist of 13 weeks, although we will have a 14-week quarter approximately once every six years. For example, the 2014 fiscal fourth quarter had 14 weeks.

 

Liquidity and Capital Resources

 

As of May 2, 2020, we had a consolidated cash balance of $21.9 million, compared to $26.7 million as of February 1, 2020, and approximately 84% of this balance was domiciled within the United States. Historically, our cash requirements have been primarily for the relocation and remodeling of existing stores in our new design, opening of new stores, investments in information technology infrastructure and working capital. Over the past several years, we have met these requirements through capital generated from cash flow provided by operations. We have a revolving line of credit under an agreement with U.S. Bank National Association, as lender, which we have generally utilized for short-term working capital needs based primarily on the seasonal nature of our operating cash flows. Historically, our peak borrowing level has occurred in the third quarter as we increase inventory in advance of the holiday selling season.

 

In response to the COVID-19 pandemic, we have taken actions to preserve and fortify our liquidity, including reducing and deferring various operating and other expenses, temporarily furloughing employees or reducing employee salaries, deferring store rental payments and engaging in discussions with our landlords and reducing planned capital expenditures, all as discussed in detail in the “—Overview—COVID-19 Update” above. In addition, we do not plan to utilize our cash to repurchase shares in fiscal 2020 in order to preserve our cash position. In addition, our ability to repurchase shares is limited by conditions set forth by our lender in our credit agreement, as described above.

 

We believe that the above measures taken to increase and maintain our liquidity, together with cash generated from operations will be sufficient to fund our working capital and other cash flow requirements for at least the next 12 months. Because of the amendments described below, we do not expect to access the credit agreement prior to its expiration on September 30, 2020 because we expect to have cash of more than $5 million and given our trailing twelve month financial results, we do not expect to meet the required fixed charge coverage ratio. We continue to explore other options to access

 

 

alternative liquidity sources which may include other lenders, various government assistance programs and monetization of existing Company assets, including the Company-owned warehouse in Ohio and inventory, and will continue to consider other actions to improve our cash position, including but not limited to implementing further Selling, general and administrative expense reductions, foregoing or delaying capital expenditures, and working with landlords to negotiate lease structure and payment terms. 

 

A summary of our operating, investing and financing activities are shown in the following table (dollars in thousands):

 

 

		Thirteen weeks ended
		May 2,				May 4,
		2020				2019
Net cash (used in) provided by operating activities		$	(2,506	)		$	5,141
Net cash (used in) investing activities			(2,849	)			(2,440	)
Net cash (used in) financing activities			(114	)			(258	)
Effect of exchange rates on cash			551				(99	)
Net (decrease) increase in cash and cash equivalents		$	(4,918	)		$	2,344

 

Operating Activities. Cash provided from operating activities decreased $7.6 million for the thirteen weeks ended May 2, 2020, as compared to the thirteen weeks ended May 4, 2019. This decrease in cash from operating activities was primarily driven by the closure of our corporately managed retail stores in North America and the United Kingdom beginning March 18, 2020.

 

Investing Activities. Cash used in investing activities increased $0.4 million for the thirteen weeks ended May 2, 2020 as compared to the thirteen weeks ended May 4, 2019. This increase in cash from investing activities was primarily driven by cash for previously committed investments in infrastructure to support the Company's digital initiatives whose spend occurred near the beginning of the period.

 

Financing Activities. Cash used in financing activities decreased $0.1 million for the thirteen weeks ended May 2, 2020, as compared to the thirteen weeks ended May 4, 2019. This decrease in cash from financing activities was driven by less stock-based compensation vesting in the first quarter of fiscal 2020 compared to the first quarter of prior year resulting in the need for less total shares withheld for taxes.

 

Capital Resources: As noted above, as of May 2, 2020, we had a consolidated cash balance of $21.9 million compared to $26.7 million as of February 1, 2020, and approximately 84% of this balance was domiciled within the United States. On May 28, 2020, we entered into the twenty-first amendment to our credit agreement, which, among other revisions, reduced the total facility to $10.0 million. Borrowings under the credit agreement are secured by our assets and a pledge of 66% of our ownership interest in certain of our foreign subsidiaries. The credit agreement expires on September 30, 2020 and contains various restrictions on indebtedness, liens, guarantees, redemptions, mergers, acquisitions or sale of assets, loans, transactions with affiliates and investments. The agreement limits the conditions under which the Company may declare dividends and repurchase shares. For example, we may not use the proceeds of the line of credit to repurchase shares. The commitment fee is 0.25% per annum and borrowings bear interest at LIBOR plus 3.25%. The amendment eliminated the minimum EBITDA, funded debt ratio, and fixed charge coverage ratio covenants as of the end of each reporting period, but imposed other restrictions, including a requirement to maintain a minimum consolidated North American cash balance of $3 million at all times and, at the time of borrowing, have no more than $5 million of consolidated North American cash and meet a fixed charge coverage ratio as of the most recent quarter-end on a trailing 12-month basis of less than 1.25 to 1.00. In addition, the Company had a $1.0 million letter of credit against the line of credit at the end of the first quarter of fiscal 2020. As of the end of the first quarter of fiscal 2020 under the credit agreement as amended on May 28, 2020, we were in compliance with the restrictions stated in the agreement and there were no borrowings under the line of credit. Although there was $9.0 million available for borrowing under the line of credit as of the end of the first quarter, because of the amendments described above, we do not expect to access the credit agreement prior to its expiration on September 30, 2020 because we expect to have cash of more than $5 million and given our trailing twelve month financial results, we do not expect to meet the required fixed charge coverage ratio.

 

Most of our retail stores are located within shopping malls and all are operated under leases classified as operating leases. Our leases in North America have shifted to shorter term leases to provide flexibility in aligning stores with market trends. Our leases typically require us to pay personal property taxes, our pro rata share of real property taxes of the shopping mall, our own utilities, repairs and maintenance in our store, a pro rata share of the malls’ common area maintenance and, in some instances,

 

 

merchant association fees and media fund contributions. Many leases contain incentives to help defray the cost of construction of a new store. Typically, a portion of the incentive must be repaid to the landlord if we choose to terminate the lease. In addition, some of these leases contain various restrictions relating to change in control of our company. Our leases also subject us to risks relating to compliance with changing mall rules and the exercise of discretion by our landlords on various matters, including rights of termination in some cases. Rents are invoiced monthly and paid in advance.

Our leases in the U.K. and Ireland typically have terms of ten years and generally contain a provision whereby every fifth year the rental rate can be adjusted to reflect the current market rates. The leases typically provide the lessee with the first right for renewal at the end of the lease. We may also be required to make deposits and rent guarantees to secure new leases as we expand. Real estate taxes also change according to government time schedules to reflect current market rental rates for the locations we lease. However, for fiscal 2020, business rates have been forgiven by the U.K. government through April 2021. Rents are invoiced monthly and quarterly and paid in advance.

 

Capital spending through the thirteen weeks ended May 2, 2020 totaled $2.8 million, which reflects previously committed investments in infrastructure to support its digital initiatives. In response to the COVID-19 pandemic, the Company subsequently has taken action to reduce planned capital expenditures in fiscal 2020 to maintenance levels.

 

In August 2017, our Board of Directors adopted a share repurchase program authorizing the repurchase of up to $20 million of our common stock. From the date of the program approval through May 2, 2020, we repurchased a total of 1.3 million shares at an average price of $8.75 per share for an aggregate amount of $11.2 million. Although we had $8.8 million of availability under the 2017 Share Repurchase Program as of May 2, 2020, currently we do not plan to utilize our cash to resume share repurchases in fiscal 2020. In addition, our ability to repurchase shares is limited by conditions set forth by our lender in our credit agreement, as described above.

 

Off-Balance Sheet Arrangements

 

None.

 

Inflation

 

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

 

Critical Accounting Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires the appropriate application of certain accounting policies, 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. Such differences could be material to the financial statements.

 

We believe application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates, including those related to long-lived assets, leases, revenue recognition and income taxes, are reevaluated on an ongoing basis, and adjustments are made when facts and circumstances dictate a change.

 

Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates. Our critical accounting policies and estimates are discussed in and should be read in conjunction with our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC) on April 16, 2020, which includes audited consolidated financial statements for our 2019 and 2018 fiscal years. There have been no material changes to the critical accounting estimates disclosed in the 2019 Form 10-K. 

 

Recent Accounting Pronouncements

 

See Note 1 to the Condensed Consolidated Financial Statements — Basis of Presentation — Recent Accounting Pronouncements – Adopted in the Current Year

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk as disclosed in our Annual Report on Form 10-K for the year ended February 1, 2020 as filed with the SEC on April 16, 2020.

 

Item 4. Controls and Procedures.

 

Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our certifying officers, as appropriate to allow timely decisions regarding required disclosure. Based on the foregoing evaluation, our management, including the President and Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of May 2, 2020, the end of the period covered by this Quarterly Report.

 

It should be noted that our management, including the President and Chief Executive Officer and the Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control Over Financial Reporting. The Company’s management, with the participation of the Company’s President and 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 period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There have been no changes in our internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

Item 1A. Risk Factors

 

There have been no material changes to our risk factors as disclosed in our Annual Report on Form 10-K for the year ended February 1, 2020 as filed with the SEC on April 16, 2020.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period		(a) Total Number of Shares (or Units) Purchased (1)				(b) Average Price Paid Per Share (or Unit)				(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)				(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2)
Feb. 2, 2020 - Feb. 29, 2020		-				-				-				$8,795,529
Mar. 1, 2020 - Apr. 4, 2020		17,738				1.43				-				8,795,529
Apr. 5, 2020 - May 2, 2020		51,751				2.54				-				8,795,529
Total		69,489				2.26				-				$8,795,529

 

(1)

Represents shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted shares which vested during the quarter. Our equity incentive plans provide that the value of shares delivered to us to pay the withholding tax obligations is calculated at the closing trading price of our common stock on the date the relevant transaction occurs.

(2)

In August 2017, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $20 million of our common stock. This program authorizes the Company to repurchase shares through September 30, 2020, does not require the Company to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares repurchased under the program will be subsequently retired. Although we had $8.8 million of availability under this program as of May 2, 2020, we do not plan to utilize our cash to resume share repurchases in fiscal 2020.  In addition, our ability to repurchase shares is limited by conditions set forth by our lender in our credit agreement, as described above.

 

 

Item 6. Exhibits

 

The following is a list of exhibits filed as a part of the quarterly report on Form 10-Q:

 

Exhibit No.		Description
2.1		Agreement and Plan of Merger dated April 3, 2000 between Build-A-Bear Workshop, L.L.C. and the Registrant (incorporated by reference from Exhibit 2.1 to our Registration Statement on Form S-1, filed on August 12, 2004, Registration No. 333-118142)
3.1		Third Amended and Restated Certificate of Incorporation (incorporated by reference from Exhibit 3.1 of our Current Report on Form 8-K, filed on November 11, 2004)
3.2		Amended and Restated Bylaws, as amended through February 23, 2016 (incorporated by reference from Exhibit 3.1 of our Current Report on Form 8-K, filed on February 24, 2016)
4.1		Specimen Stock Certificate (incorporated by reference from Exhibit 4.1 to Amendment No. 3 to our Registration Statement on Form S-1, filed on October 1, 2004, Registration No. 333-118142)
10.1*		Amendment to Employment, Confidentiality and Noncompete Agreement, effective as of March 29, 2020, by and between Eric Fencl and Build-A-Bear Workshop, Inc.
10.2*		Amendment to Employment, Confidentiality and Noncompete Agreement, effective as of March 29, 2020, by and between J. Christopher Hurt and Build-A-Bear Workshop, Inc.
10.3*		Amendment to Employment, Confidentiality and Noncompete Agreement, effective as of March 29, 2020, by and between Sharon Price John and Build-A-Bear Workshop, Inc.
10.4*		Amendment to Employment, Confidentiality and Noncompete Agreement, effective as of March 29, 2020, by and between Jennifer Kretchmar and Build-A-Bear Workshop, Inc.
10.5*		Amendment to Employment, Confidentiality and Noncompete Agreement, effective as of March 29, 2020, by and between Vojin Todorovic and Build-A-Bear Workshop, Inc.
10.6		Twenty-First Amendment to Loan Documents between Build-A-Bear Workshop, Inc., Build-A-Bear Workshop Franchise Holdings, Inc., Build-A-Bear Entertainment, LLC, Build-A-Bear Retail Management, Inc., and Build-A-Bear Card Services, LLC, as Borrowers, and U.S. Bank National Association, as Lender, entered into effective as of May 28, 2020 (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K, filed on June 1, 2020)
31.1		Rule 13a-14(a)/15d-14(a) certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by the President and 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 the Chief Financial Officer)
32.1		Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the President and Chief Executive Officer)
32.2		Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Chief Financial Officer)
101.INS		XBRL Instance
101.SCH		XBRL Extension Schema

 

 

101.CAL		XBRL Extension Calculation
101.DEF		XBRL Extension Definition
101.LAB		XBRL Extension Label
101.PRE		XBRL Extension Presentation

 

* Management contract or compensatory plan or arrangement.

 

 

SIGNATURES

 

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: June 11, 2020

 

 

	BUILD-A-BEAR WORKSHOP, INC.
	(Registrant)
	By:	/s/ Sharon John
		Sharon John
		President and Chief Executive Officer (on behalf of the registrant and as principal executive officer)
	By:	/s/ Voin Todorovic
		Voin Todorovic
		Chief Financial Officer (on behalf of the registrant and as principal financial officer)

 

 

Exhibit 10.1

 

AMENDMENT TO
EMPLOYMENT, CONFIDENTIALITY AND NONCOMPETE AGREEMENT

 

This Amendment to Employment, Confidentiality and Noncompete Agreement (this “Amendment”) is entered into effective as of March 29, 2020 (the “Amendment Effective Date”), by and between Build-A-Bear Workshop, Inc., a Delaware corporation (“Company”), and Eric Fencl (“Employee”).

 

WHEREAS, Company and Employee are party to that certain Employment, Confidentiality and Noncompete Agreement, effective as of March 7, 2016 (the “Agreement”).

 

WHEREAS, in response to the potential effect of the COVID-19 pandemic on Company’s revenue, the Company and Employee would like to amend the Agreement to temporarily reduce Employee’s base salary, defer certain bonus payments and to make the other changes discussed herein.

 

NOW, THEREFORE, in consideration of the compensation and other benefits of Employee’s employment by Company and the recitals, mutual covenants and agreements set forth herein and in the Agreement, Employee and Company agree to amend the Agreement as follows:

 

1.     Amendments. The following shall be added as a new Section 3(g) to the end of Section 3 of the Agreement:

 

(g)     Temporary Amendments to Sections 3(a) and 3(b).

 

(i) As of the Amendment Effective Date, Employee’s annual base salary shall be reduced by twenty percent (20%) for the duration of the Reduction Period. “Reduction Period” means the period commencing on the Amendment Effective Date through and including the earliest of (A) December 31, 2020, (B) the date on which the Compensation Committee approves the ending of the Reduction Period, and (C) the date on which the then-current non-executive employees of the Company who were employed by the Company as of March 15, 2020 and whose base salaries were reduced as a result of the COVID-19 pandemic have had their respective annual base salaries returned to at or above their respective annual base salary amounts as of March 15, 2020. Such reduced amounts shall continue to be payable in accordance with Company’s usual practices. Except as explicitly contemplated by this Section 3(g)(i), Employee’s annual base salary rate shall not be subject to decrease at any time during the Employment Period. Employee shall not be entitled to any back-pay or makeup pay as a result of the salary reduction under this Section 3(g)(i) after the end of the Reduction Period.

 

(ii) The Parties agree that bonus amounts owed to Employee for the fiscal year ended February 1, 2020 (the “2019 Bonus”) under this Agreement and pursuant to the Build-A-Bear Workshop, Inc. Fiscal 2019 Bonus Plan shall be paid by Company in a lump sum on December 31, 2020 or, if approved by the Compensation Committee, in one or more installments on or prior to December 31, 2020. In the event of termination of this Agreement prior to payment of Employee’s 2019 Bonus in full because of Employee’s death or disability (as defined by Section 4.1(b)), termination by Company without Cause pursuant to Section 4.1(c) of the Agreement, or pursuant to Employee’s right to terminate the Agreement for Good Reason under Section 4.1(d) of the Agreement, as modified by this Amendment, (1) the 2019 Bonus shall be paid at the time and in the form such bonus would have been paid pursuant to this Amendment had Employee’s employment continued until the payment date and (2) the bonus for the fiscal year in which such termination occurs shall be pro-rated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder, based on the bonus amount that Employee would have earned based on actual performance for the fiscal year had Employee’s employment not terminated, and shall be paid at the time and in the form such bonus would have been paid had Employee’s employment continued; provided, however, in the event of termination of this Agreement because of Employee’s termination by Company without Cause pursuant to Section 4.1(c) or pursuant to Employee’s right to terminate this Agreement for Good Reason under Section 4.1(d) and such termination is on the date of a Change in Control or during a period of twenty-four (24) months after a Change in Control, Employee’s target bonus for the fiscal year in which such termination occurs shall be prorated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder and shall be paid within thirty (30) days of such termination (subject to any delay in payout required under Section 4.2(b)). Notwithstanding anything herein to the contrary, no bonus (including, without limitation, the 2019 Bonus) shall be payable hereunder in the event that Employee’s employment terminates for any other reason prior to the date on which any bonus is actually paid.

 

(iii) At all times until Employee’s base salary has been returned to at or above Employee’s base salary level as of immediately prior to the Amendment Effective Date and Employee’s 2019 Bonus has been paid in full, this Section 3(g) shall be in lieu of, and not in addition to, any rights and obligations under Section 3(a) and 3(b), as applicable.

 

2.     Affirmation of Agreement. The Agreement, as amended hereby, is reaffirmed in all respects. For the avoidance of doubt, the Employee agrees that the amendments contained herein do not constitute a “Good Reason”, with or without the giving of notice, under the Agreement. In the event of any conflict between this Amendment and the Agreement, this Amendment shall govern.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of April 14, 2020, to be effective as of the Amendment Effective Date.

 

 

 

/s/ Eric Fencl     
Eric Fencl

 

 

 

BUILD-A-BEAR WORKSHOP, INC.

 

 

 

By: /s/ Sharon Price John

 

Name:     Sharon Price John

 

Title:      President and Chief Executive Officer               

 

Exhibit 10.2

 

AMENDMENT TO
EMPLOYMENT, CONFIDENTIALITY AND NONCOMPETE AGREEMENT

 

This Amendment to Employment, Confidentiality and Noncompete Agreement (this “Amendment”) is entered into effective as of March 29, 2020 (the “Amendment Effective Date”), by and between Build-A-Bear Workshop, Inc., a Delaware corporation (“Company”), and J. Christopher Hurt (“Employee”).

 

WHEREAS, Company and Employee are party to that certain Employment, Confidentiality and Noncompete Agreement, effective as of March 7, 2016 (the “Agreement”).

 

WHEREAS, in response to the potential effect of the COVID-19 pandemic on Company’s revenue, the Company and Employee would like to amend the Agreement to temporarily reduce Employee’s base salary, defer certain bonus payments and to make the other changes discussed herein.

 

NOW, THEREFORE, in consideration of the compensation and other benefits of Employee’s employment by Company and the recitals, mutual covenants and agreements set forth herein and in the Agreement, Employee and Company agree to amend the Agreement as follows:

 

1.     Amendments. The following shall be added as a new Section 3(g) to the end of Section 3 of the Agreement:

 

(g)     Temporary Amendments to Sections 3(a) and 3(b).

 

(i) As of the Amendment Effective Date, Employee’s annual base salary shall be reduced by twenty percent (20%) for the duration of the Reduction Period. “Reduction Period” means the period commencing on the Amendment Effective Date through and including the earliest of (A) December 31, 2020, (B) the date on which the Compensation Committee approves the ending of the Reduction Period, and (C) the date on which the then-current non-executive employees of the Company who were employed by the Company as of March 15, 2020 and whose base salaries were reduced as a result of the COVID-19 pandemic have had their respective annual base salaries returned to at or above their respective annual base salary amounts as of March 15, 2020. Such reduced amounts shall continue to be payable in accordance with Company’s usual practices. Except as explicitly contemplated by this Section 3(g)(i), Employee’s annual base salary rate shall not be subject to decrease at any time during the Employment Period. Employee shall not be entitled to any back-pay or makeup pay as a result of the salary reduction under this Section 3(g)(i) after the end of the Reduction Period.

 

(ii) The Parties agree that bonus amounts owed to Employee for the fiscal year ended February 1, 2020 (the “2019 Bonus”) under this Agreement and pursuant to the Build-A-Bear Workshop, Inc. Fiscal 2019 Bonus Plan shall be paid by Company in a lump sum on December 31, 2020 or, if approved by the Compensation Committee, in one or more installments on or prior to December 31, 2020. In the event of termination of this Agreement prior to payment of Employee’s 2019 Bonus in full because of Employee’s death or disability (as defined by Section 4.1(b)), termination by Company without Cause pursuant to Section 4.1(c) of the Agreement, or pursuant to Employee’s right to terminate the Agreement for Good Reason under Section 4.1(d) of the Agreement, as modified by this Amendment, (1) the 2019 Bonus shall be paid at the time and in the form such bonus would have been paid pursuant to this Amendment had Employee’s employment continued until the payment date and (2) the bonus for the fiscal year in which such termination occurs shall be pro-rated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder, based on the bonus amount that Employee would have earned based on actual performance for the fiscal year had Employee’s employment not terminated, and shall be paid at the time and in the form such bonus would have been paid had Employee’s employment continued; provided, however, in the event of termination of this Agreement because of Employee’s termination by Company without Cause pursuant to Section 4.1(c) or pursuant to Employee’s right to terminate this Agreement for Good Reason under Section 4.1(d) and such termination is on the date of a Change in Control or during a period of twenty-four (24) months after a Change in Control, Employee’s target bonus for the fiscal year in which such termination occurs shall be prorated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder and shall be paid within thirty (30) days of such termination (subject to any delay in payout required under Section 4.2(b)). Notwithstanding anything herein to the contrary, no bonus (including, without limitation, the 2019 Bonus) shall be payable hereunder in the event that Employee’s employment terminates for any other reason prior to the date on which any bonus is actually paid.

 

(iii) At all times until Employee’s base salary has been returned to at or above Employee’s base salary level as of immediately prior to the Amendment Effective Date and Employee’s 2019 Bonus has been paid in full, this Section 3(g) shall be in lieu of, and not in addition to, any rights and obligations under Section 3(a) and 3(b), as applicable.

 

2.     Affirmation of Agreement. The Agreement, as amended hereby, is reaffirmed in all respects. For the avoidance of doubt, the Employee agrees that the amendments contained herein do not constitute a “Good Reason”, with or without the giving of notice, under the Agreement. In the event of any conflict between this Amendment and the Agreement, this Amendment shall govern.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of April 14, 2020, to be effective as of the Amendment Effective Date.

 

 

 

/s/ J. Christopher Hurt     
J. Christopher Hurt

 

 

 

BUILD-A-BEAR WORKSHOP, INC.

 

 

 

By: /s/ Sharon Price John

 

Name: Sharon Price John

 

Title:     President and Chief Executive Officer

 

Exhibit 10.3

 

AMENDMENT TO
EMPLOYMENT, CONFIDENTIALITY AND NONCOMPETE AGREEMENT

 

This Amendment to Employment, Confidentiality and Noncompete Agreement (this “Amendment”) is entered into effective as of March 29, 2020 (the “Amendment Effective Date”), by and between Build-A-Bear Workshop, Inc., a Delaware corporation (“Company”), and Sharon Price John (“Employee”).

 

WHEREAS, Company and Employee are party to that certain Employment, Confidentiality and Noncompete Agreement, effective as of March 7, 2019 (the “Agreement”).

 

WHEREAS, in response to the potential effect of the COVID-19 pandemic on Company’s revenue, the Company and Employee would like to amend the Agreement to temporarily reduce Employee’s base salary, defer certain bonus payments and to make the other changes discussed herein.

 

NOW, THEREFORE, in consideration of the compensation and other benefits of Employee’s employment by Company and the recitals, mutual covenants and agreements set forth herein and in the Agreement, Employee and Company agree to amend the Agreement as follows:

 

1.     Amendments. The following shall be added as a new Section 3(g) to the end of Section 3 of the Agreement:

 

(g)     Temporary Amendments to Sections 3(a) and 3(b).

 

(i) As of the Amendment Effective Date, Employee’s annual base salary shall be reduced by twenty percent (20%) for the duration of the Reduction Period. “Reduction Period” means the period commencing on the Amendment Effective Date through and including the earliest of (A) December 31, 2020, (B) the date on which the Compensation Committee approves the ending of the Reduction Period, and (C) the date on which the then-current non-executive employees of the Company who were employed by the Company as of March 15, 2020 and whose base salaries were reduced as a result of the COVID-19 pandemic have had their respective annual base salaries returned to at or above their respective annual base salary amounts as of March 15, 2020. Such reduced amounts shall continue to be payable in accordance with Company’s usual practices. Except as explicitly contemplated by this Section 3(g)(i), Employee’s annual base salary rate shall not be subject to decrease at any time during the Employment Period. Employee shall not be entitled to any back-pay or makeup pay as a result of the salary reduction under this Section 3(g)(i) after the end of the Reduction Period.

 

(ii) The Parties agree that bonus amounts owed to Employee for the fiscal year ended February 1, 2020 (the “2019 Bonus”) under this Agreement and pursuant to the Build-A-Bear Workshop, Inc. Fiscal 2019 Bonus Plan shall be paid by Company in a lump sum on December 31, 2020 or, if approved by the Compensation Committee, in one or more installments on or prior to December 31, 2020. In the event of termination of this Agreement prior to payment of Employee’s 2019 Bonus in full because of Employee’s death or disability (as defined by Section 4.1(b)), termination by Company without Cause pursuant to Section 4.1(c) of the Agreement, or pursuant to Employee’s right to terminate the Agreement for Good Reason under Section 4.1(d) of the Agreement, as modified by this Amendment, (1) the 2019 Bonus shall be paid at the time and in the form such bonus would have been paid pursuant to this Amendment had Employee’s employment continued until the payment date and (2) the bonus for the fiscal year in which such termination occurs shall be pro-rated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder, based on the bonus amount that Employee would have earned based on actual performance for the fiscal year had Employee’s employment not terminated, and shall be paid at the time and in the form such bonus would have been paid had Employee’s employment continued; provided, however, in the event of termination of this Agreement because of Employee’s termination by Company without Cause pursuant to Section 4.1(c) or pursuant to Employee’s right to terminate this Agreement for Good Reason under Section 4.1(d) and such termination is on the date of a Change in Control or during a period of twenty-four (24) months after a Change in Control, Employee’s target bonus for the fiscal year in which such termination occurs shall be prorated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder and shall be paid within thirty (30) days of such termination (subject to any delay in payout required under Section 4.2(b)). Notwithstanding anything herein to the contrary, no bonus (including, without limitation, the 2019 Bonus) shall be payable hereunder in the event that Employee’s employment terminates for any other reason prior to the date on which any bonus is actually paid.

 

(iii) At all times until Employee’s base salary has been returned to at or above Employee’s base salary level as of immediately prior to the Amendment Effective Date and Employee’s 2019 Bonus has been paid in full, this Section 3(g) shall be in lieu of, and not in addition to, any rights and obligations under Section 3(a) and 3(b), as applicable.

 

2.     Affirmation of Agreement. The Agreement, as amended hereby, is reaffirmed in all respects. For the avoidance of doubt, the Employee agrees that the amendments contained herein do not constitute a “Good Reason”, with or without the giving of notice, under the Agreement. In the event of any conflict between this Amendment and the Agreement, this Amendment shall govern.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of April 14, 2020, to be effective as of the Amendment Effective Date.

 

 

 

/s/ Sharon Price John     
Sharon Price John

 

 

 

BUILD-A-BEAR WORKSHOP, INC.

 

 

 

By: /s/ Eric R. Fencl

 

Name: Eric R. Fencl

 

Title:    Chief Administrative Officer, General Counsel and Secretary

 

Exhibit 10.4

 

AMENDMENT TO
EMPLOYMENT, CONFIDENTIALITY AND NONCOMPETE AGREEMENT

 

This Amendment to Employment, Confidentiality and Noncompete Agreement (this “Amendment”) is entered into effective as of March 29, 2020 (the “Amendment Effective Date”), by and between Build-A-Bear Workshop, Inc., a Delaware corporation (“Company”), and Jennifer Kretchmar (“Employee”).

 

WHEREAS, Company and Employee are party to that certain Employment, Confidentiality and Noncompete Agreement, effective as of March 7, 2016 (the “Agreement”).

 

WHEREAS, in response to the potential effect of the COVID-19 pandemic on Company’s revenue, the Company and Employee would like to amend the Agreement to temporarily reduce Employee’s base salary, defer certain bonus payments and to make the other changes discussed herein.

 

NOW, THEREFORE, in consideration of the compensation and other benefits of Employee’s employment by Company and the recitals, mutual covenants and agreements set forth herein and in the Agreement, Employee and Company agree to amend the Agreement as follows:

 

1.     Amendments. The following shall be added as a new Section 3(g) to the end of Section 3 of the Agreement:

 

(g)     Temporary Amendments to Sections 3(a) and 3(b).

 

(i) As of the Amendment Effective Date, Employee’s annual base salary shall be reduced by twenty percent (20%) for the duration of the Reduction Period. “Reduction Period” means the period commencing on the Amendment Effective Date through and including the earliest of (A) December 31, 2020, (B) the date on which the Compensation Committee approves the ending of the Reduction Period, and (C) the date on which the then-current non-executive employees of the Company who were employed by the Company as of March 15, 2020 and whose base salaries were reduced as a result of the COVID-19 pandemic have had their respective annual base salaries returned to at or above their respective annual base salary amounts as of March 15, 2020. Such reduced amounts shall continue to be payable in accordance with Company’s usual practices. Except as explicitly contemplated by this Section 3(g)(i), Employee’s annual base salary rate shall not be subject to decrease at any time during the Employment Period. Employee shall not be entitled to any back-pay or makeup pay as a result of the salary reduction under this Section 3(g)(i) after the end of the Reduction Period.

 

(ii) The Parties agree that bonus amounts owed to Employee for the fiscal year ended February 1, 2020 (the “2019 Bonus”) under this Agreement and pursuant to the Build-A-Bear Workshop, Inc. Fiscal 2019 Bonus Plan shall be paid by Company in a lump sum on December 31, 2020 or, if approved by the Compensation Committee, in one or more installments on or prior to December 31, 2020. In the event of termination of this Agreement prior to payment of Employee’s 2019 Bonus in full because of Employee’s death or disability (as defined by Section 4.1(b)), termination by Company without Cause pursuant to Section 4.1(c) of the Agreement, or pursuant to Employee’s right to terminate the Agreement for Good Reason under Section 4.1(d) of the Agreement, as modified by this Amendment, (1) the 2019 Bonus shall be paid at the time and in the form such bonus would have been paid pursuant to this Amendment had Employee’s employment continued until the payment date and (2) the bonus for the fiscal year in which such termination occurs shall be pro-rated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder, based on the bonus amount that Employee would have earned based on actual performance for the fiscal year had Employee’s employment not terminated, and shall be paid at the time and in the form such bonus would have been paid had Employee’s employment continued; provided, however, in the event of termination of this Agreement because of Employee’s termination by Company without Cause pursuant to Section 4.1(c) or pursuant to Employee’s right to terminate this Agreement for Good Reason under Section 4.1(d) and such termination is on the date of a Change in Control or during a period of twenty-four (24) months after a Change in Control, Employee’s target bonus for the fiscal year in which such termination occurs shall be prorated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder and shall be paid within thirty (30) days of such termination (subject to any delay in payout required under Section 4.2(b)). Notwithstanding anything herein to the contrary, no bonus (including, without limitation, the 2019 Bonus) shall be payable hereunder in the event that Employee’s employment terminates for any other reason prior to the date on which any bonus is actually paid.

 

(iii) At all times until Employee’s base salary has been returned to at or above Employee’s base salary level as of immediately prior to the Amendment Effective Date and Employee’s 2019 Bonus has been paid in full, this Section 3(g) shall be in lieu of, and not in addition to, any rights and obligations under Section 3(a) and 3(b), as applicable.

 

2.     Affirmation of Agreement. The Agreement, as amended hereby, is reaffirmed in all respects. For the avoidance of doubt, the Employee agrees that the amendments contained herein do not constitute a “Good Reason”, with or without the giving of notice, under the Agreement. In the event of any conflict between this Amendment and the Agreement, this Amendment shall govern.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of April 14, 2020, to be effective as of the Amendment Effective Date.

 

 

 

/s/ Jennifer Kretchmar     
Jennifer Kretchmar

 

 

 

BUILD-A-BEAR WORKSHOP, INC.

 

 

 

By: /s/ Sharon Price John

 

Name: Sharon Price John

 

Title:     President and Chief Executive Officer

 

Exhibit 10.5

 

AMENDMENT TO
EMPLOYMENT, CONFIDENTIALITY AND NONCOMPETE AGREEMENT

 

This Amendment to Employment, Confidentiality and Noncompete Agreement (this “Amendment”) is entered into effective as of March 29, 2020 (the “Amendment Effective Date”), by and between Build-A-Bear Workshop, Inc., a Delaware corporation (“Company”), and Vojin Todorovic (“Employee”).

 

WHEREAS, Company and Employee are party to that certain Employment, Confidentiality and Noncompete Agreement, effective as of March 7, 2020 (the “Agreement”).

 

WHEREAS, in response to the potential effect of the COVID-19 pandemic on Company’s revenue, the Company and Employee would like to amend the Agreement to temporarily reduce Employee’s base salary, defer certain bonus payments and to make the other changes discussed herein.

 

NOW, THEREFORE, in consideration of the compensation and other benefits of Employee’s employment by Company and the recitals, mutual covenants and agreements set forth herein and in the Agreement, Employee and Company agree to amend the Agreement as follows:

 

1.     Amendments. The following shall be added as a new Section 3(g) to the end of Section 3 of the Agreement:

 

(g)     Temporary Amendments to Sections 3(a) and 3(b).

 

(i) As of the Amendment Effective Date, Employee’s annual base salary shall be reduced by twenty percent (20%) for the duration of the Reduction Period. “Reduction Period” means the period commencing on the Amendment Effective Date through and including the earliest of (A) December 31, 2020, (B) the date on which the Compensation Committee approves the ending of the Reduction Period, and (C) the date on which the then-current non-executive employees of the Company who were employed by the Company as of March 15, 2020 and whose base salaries were reduced as a result of the COVID-19 pandemic have had their respective annual base salaries returned to at or above their respective annual base salary amounts as of March 15, 2020. Such reduced amounts shall continue to be payable in accordance with Company’s usual practices. Except as explicitly contemplated by this Section 3(g)(i), Employee’s annual base salary rate shall not be subject to decrease at any time during the Employment Period. Employee shall not be entitled to any back-pay or makeup pay as a result of the salary reduction under this Section 3(g)(i) after the end of the Reduction Period.

 

(ii) The Parties agree that bonus amounts owed to Employee for the fiscal year ended February 1, 2020 (the “2019 Bonus”) under this Agreement and pursuant to the Build-A-Bear Workshop, Inc. Fiscal 2019 Bonus Plan shall be paid by Company in a lump sum on December 31, 2020 or, if approved by the Compensation Committee, in one or more installments on or prior to December 31, 2020. In the event of termination of this Agreement prior to payment of Employee’s 2019 Bonus in full because of Employee’s death or disability (as defined by Section 4.1(b)), termination by Company without Cause pursuant to Section 4.1(c) of the Agreement, or pursuant to Employee’s right to terminate the Agreement for Good Reason under Section 4.1(d) of the Agreement, as modified by this Amendment, (1) the 2019 Bonus shall be paid at the time and in the form such bonus would have been paid pursuant to this Amendment had Employee’s employment continued until the payment date and (2) the bonus for the fiscal year in which such termination occurs shall be pro-rated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder, based on the bonus amount that Employee would have earned based on actual performance for the fiscal year had Employee’s employment not terminated, and shall be paid at the time and in the form such bonus would have been paid had Employee’s employment continued; provided, however, in the event of termination of this Agreement because of Employee’s termination by Company without Cause pursuant to Section 4.1(c) or pursuant to Employee’s right to terminate this Agreement for Good Reason under Section 4.1(d) and such termination is on the date of a Change in Control or during a period of twenty-four (24) months after a Change in Control, Employee’s target bonus for the fiscal year in which such termination occurs shall be prorated based on the number of full calendar weeks during the applicable fiscal year during which Employee was employed hereunder and shall be paid within thirty (30) days of such termination (subject to any delay in payout required under Section 4.2(b)). Notwithstanding anything herein to the contrary, no bonus (including, without limitation, the 2019 Bonus) shall be payable hereunder in the event that Employee’s employment terminates for any other reason prior to the date on which any bonus is actually paid.

 

(iii) At all times until Employee’s base salary has been returned to at or above Employee’s base salary level as of immediately prior to the Amendment Effective Date and Employee’s 2019 Bonus has been paid in full, this Section 3(g) shall be in lieu of, and not in addition to, any rights and obligations under Section 3(a) and 3(b), as applicable.

 

2.     Affirmation of Agreement. The Agreement, as amended hereby, is reaffirmed in all respects. For the avoidance of doubt, the Employee agrees that the amendments contained herein do not constitute a “Good Reason”, with or without the giving of notice, under the Agreement. In the event of any conflict between this Amendment and the Agreement, this Amendment shall govern.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of April 14, 2020, to be effective as of the Amendment Effective Date.

 

 

 

/s/ Vojin Todorovic     
Vojin Todorovic

 

 

 

BUILD-A-BEAR WORKSHOP, INC.

 

 

 

By: /s/ Sharon Price John

 

Name: Sharon Price John

 

Title:     President and Chief Executive Officer

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

AND RULE 13a-14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

I, Sharon John, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Build-A-Bear Workshop, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

 

	/s/ Sharon John
	Sharon John
	President and Chief Executive Officer Build-A-Bear Workshop, Inc.
	(Principal Executive Officer)

 

Date: June 11, 2020

Exhibit 31.2

 

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

AND RULE 13a-14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

I, Voin Todorovic, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Build-A-Bear Workshop, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

 

	/s/ Voin Todorovic
	Voin Todorovic Chief Financial Officer Build-A-Bear Workshop, Inc. (Principal Financial Officer)

 

Date: June 11, 2020

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of Build-A-Bear Workshop, Inc. (the “Company”) on Form 10-Q for the period ended May 2, 2020 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sharon John, President and Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

	/s/ Sharon John
	Sharon John President and Chief Executive Officer Build-A-Bear Workshop, Inc.
	(Principal Executive Officer)

 

Date: June 11, 2020

Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of Build-A-Bear Workshop, Inc. (the “Company”) on Form 10-Q for the period ended May 2, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Voin Todorovic, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

	/s/ Voin Todorovic
	Voin Todorovic Chief Financial Officer Build-A-Bear Workshop, Inc.
	(Principal Financial Officer)

 

Date: June 11, 2020