Basis of Presentation

The condensed consolidated financial statements included herein are unaudited and have been prepared by Build-A-Bear Workshop, Inc. and its subsidiaries (collectively, the Company) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet of the Company as of

December 30, 2017

was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly the financial position of the Company and the results of the Company’s operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. Because of the seasonal nature of the Company’s operations, results of operations of any single reporting period should

not

be considered as indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended

December 30, 2017,

which were included in the Company’s annual report on Form

-K filed with the SEC on

March 15, 2018.

Certain amounts in prior fiscal periods have been reclassified to conform with the presentation adopted in the current fiscal year.

Change in Fiscal Year

January 2018,

the Company's Board of Directors approved a change in the Company’s fiscal year-end, which previously ended on the Saturday closest to

December 31,

to the Saturday closest to

January 31.

This change was effective following the end of the Company's

2017

fiscal year. The

first

-month fiscal year under the new calendar will encompass

February 4, 2018

through

February 2, 2019.

As a result of the change, the Company had a

one

fiscal month transition period,

December 31, 2017

through

February 3, 2018.

Results of the transition period are presented herewith and will be reported in the Company’s Annual Report Form

-K for the year ending

February 2, 2019.

Recent Accounting Pronouncements – Adopted in the current year

Effective

December 31, 2017,

the Company adopted Accounting Standards Codification (“ASC”)

606,

Revenue from Contracts with Customers, and all the related amendments using the modified retrospective method. ASC

606

requires an entity to recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. Nearly all of the Company’s revenue is derived from retail sales (including ecommerce sites) and is recognized when control of the merchandise is transferred to the customer.

The Company's most significant ASC

606

impact relates to accounting for gift card breakage. The Company's adjustment for gift card breakage reflects the impact of the change to recognize gift card breakage proportionately as gift card balances are used rather than when it is deemed remote that the unused gift card balance would be redeemed, as done for certain categories of gift cards under the previous standards. In addition, the Company has identified minor changes to the timing of revenues for certain outbound licensing arrangements and international franchise agreements.

Using the modified retrospective method, the Company recognized the cumulative effect of initially applying the revenue standard as a

$12.3

million adjustment offset by the associated

$3.0

million tax effect to the

December 31, 2017

retained earnings balance. As a result of this change, the Company expects a negative impact to revenue and pre-tax income of

$3.9

million in fiscal

2018

with the remaining balance of the cumulative effect adjustment predominantly impacting fiscal years

2019

and

2020.

The Company elected to apply this method to contracts that were

not

completed as of

December 31, 2017.

The comparative historical financial information has

not

been restated and continues to be reported under the accounting standards in effect for those periods. As a result of applying the modified retrospective method to transition to ASC

606,

the following adjustments were made to the consolidated balance sheet as of

December 31, 2017 (

dollars in thousands):

Balance Sheet	Balance as of December 30, 2017		Adjustments due to ASC 606			Balance as of December 31, 2017

Assets
Prepaid expenses and other current assets	$	13,346	$	(13	)	$	13,333
Deferred tax assets		6,381		(2,880	)		3,501
Adjustment: assets				(2,893	)

Liabilities
Accrued expenses (1)		15,189		151			15,340
Gift cards and customer deposits		33,926		(12,297	)		21,629

Equity
Retained Earnings		49,760		9,253			59,013
Adjustment: liabilities and stockholders' equity			$	(2,893	)

(

) - The impact on the balances due to the adoption of ASC

606

includes income tax payable.

The following tables reflect the impact of adoption of ASC

606

on the Company's condensed consolidated statement of income for the

thirteen

weeks ended

May 5, 2018

and its condensed consolidated balance sheet as of

May 5, 2018

and the amounts as if the previous standards were in effect ("Without Adoption of

ASC606"

) (dollars in thousands):

	For the thirteen weeks ended Ma y 5 , 2018
	As Reported		Without Adoption of ASC 606		Effect of Change
Income statement
Revenues
Net retail sales	$	81,425	$	82,024	$	(599)
Commercial revenue		1,019		1,019		–
International franchising		740		740		–
Total revenues		83,184		83,783		(599)

Total costs and expenses		–		–		–
Income tax expense	292			450		(158)
Net income	$	354	$	795	$	(441)

	May 5, 2018
	As Reported		Without Adoption of ASC 606		Effect of Change
Balance Sheet
Liabilities
Accrued expenses (1)	$	8,739	$	8,746	$	7
Gift cards and customer deposits (1)		17,007		28,705		11,698

Equity
Retained earnings (1)		55,904		47,092	(8,812)
					2,893

(

) - The impact on the balances without adoption of ASC

606

includes the activity for the

thirteen

weeks ended

May 5, 2018

and the

December 31, 2017

adjustment.

The impact of adoption of ASC

606

on the Company's condensed consolidated statement of cash flows from operating activities for the

thirteen

weeks ended

May 5, 2018

was

not

significant.

Recently Issued Accounting Pronouncements

February 2016,

the FASB issued Accounting Standards Update (“ASU”)

No.

2016

02,

Leases (ASU

2016

), which will replace most existing lease accounting guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize the rights and obligations resulting from leases as assets and liabilities. ASU

2016

requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU

2016

will be effective for the Company beginning in fiscal

2019

and allows cumulative and modified retrospective methods of adoption. Early adoption is permitted. The Company is in the process of determining the impact of ASU

2016

on its consolidated financial statements. Management expects a material impact to the consolidated balance sheet with the addition of significant right-of-use assets and related liabilities because the Company's retail locations are currently categorized as operating leases. In

2017,

the Company established a cross-functional team to use a detailed approach to assess the impact of the new standard. The Company is in the process of implementing new lease accounting software to assist in the quantification of the expected impact on the consolidated balance sheets and to facilitate the calculations of the related accounting entries and disclosures.