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.

Recast historical unaudited financial information for the

thirteen

and

twenty-six

weeks ended

July 29, 2017

is included in the consolidated financial statements and accompanying notes.

Recent Accounting Pronouncements – Adopted in the current year

March 2018,

the FASB issued Accounting Standards Update (“ASU”)

2018

05,

Income Taxes (Topic

740

)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin

No.

118,

that codified SEC Staff Accounting Bulletin (“SAB”)

No.

118,

as it relates to allowing for recognition of provisional amounts related to the U.S. Tax Cuts and Jobs Act (“TCJA”) in the event that the accounting is

not

complete and a reasonable estimate can be made. Where necessary information is

not

available, prepared, or analyzed to determine a reasonable estimate,

provisional amount should be recorded. The guidance allows for a measurement period of up to

one

year from the enactment date to finalize the accounting related to the TCJA. The Company has applied the guidance in this update to its financial statements for the

twenty-six

weeks ended

August 4, 2018

and will finalize and record any adjustments related to the TCJA within the

one

year measurement period.

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 for contracts that were

not

completed as of

December 31, 2017.

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 e-commerce 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.

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 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

Stockholders' 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

for select accounts on the Company’s condensed consolidated statement of income for the

thirteen

and

twenty-six

weeks ended

August 4, 2018

and its condensed consolidated balance sheet as of

August 4, 2018

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

606”

) (dollars in thousands):

	For the thirteen weeks ended August 4, 2018									For the twenty-six weeks ended August 4, 2018
	As Reported			Without Adoption of ASC 606			Effect of Change			As Reported			Without Adoption of ASC 606			Effect of Change
Select income statement
Revenues
Net retail sales	$	81,037		$	81,779		$	(742	)	$	162,462		$	163,803		$	(1,341	)
Commercial revenue		1,055			1,055			–			2,074			2,074			–
International franchising revenue		1,086			1,086			–			1,826			1,826			–
Total revenues		83,178			83,920			(742	)		166,362			167,703			(1,341	)

Total costs and expenses		–			–			–			–			–			–
Income tax expense		(745	)		(528	)		217			(453	)		(133	)		320
Net loss	$	(1,800	)	$	(1,275	)	$	(525	)	$	(1,446	)	$	(425	)	$	(1,021	)

	August 4, 2018
	As Reported		Without Adoption of ASC 606		Effect of Change
Select balance sheet
Liabilities
Accrued expenses (1)	$	12,482	$	12,651	$	169
Gift cards and customer deposits (1)		14,502		25,458		10,956

Stockholders' equity
Retained earnings (1)		53,811		45,579		(8,232	)
Net effect of Change on Liabilities and Stockholders’ equity					$	2,893

(

) - The impact on the balances without adoption of ASC

606

includes the activity for the

twenty-six

weeks ended

August 4, 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

and

twenty-six

weeks ended

August 4, 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

will be effective for the Company beginning in fiscal

2019.

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 assess the portfolio of leases, assist in the quantification of the expected impact on the consolidated balance sheet and to facilitate the calculations of the related accounting entries and disclosures. Lease data, required for lease accounting, has been extracted and loaded into the software solution. While the Company has

not

yet completed its evaluation of the impact the new lease accounting guidance will have on its consolidated financial statements, the Company expects to recognize 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 location leases are currently deemed to be operating leases.