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

February 1, 2020

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

February 1, 2020

, which were included in the Company’s Annual Report on Form

-K filed with the SEC on

April 16, 2020.

COVID-

Pandemic

March 2020,

the World Health Organization announced that COVID-

is a global pandemic. On

March 17, 2020,

the Company announced the temporary closure of all owned and operated stores in the United States, Canada, the United Kingdom, Denmark and Ireland as a result of the pandemic. In addition, on

March 26, 2020,

the Company announced the temporary closure of its warehouse and e-commerce fulfillment center in Ohio as it reviewed its process related to workplace safety, including social distancing and sanitation practices recommended by the Centers for Disease Control and Prevention. The Ohio warehouse was reopened on

April 1, 2020

following the review and reconfiguration of workflow and workspaces to further promote social distancing and minimize interaction as orders are fulfilled. While some stores in the United States and the e-commerce businesses in the United States and the United Kingdom continue to serve customers during this crisis, the Company has experienced a loss of sales and earnings as a result of the store closures. In addition, many of the Company's wholesale customers have also closed their retail stores affecting their inventory purchases. Although the store closures are expected to be temporary and the Company has begun to open stores where allowable by local law, the Company cannot estimate the duration of the store closures for the remainder of stores, the impact on our interactive retail experience once stores are reopened, or the full financial effect as a result of COVID-

19.

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.

The Company has

not

borrowed on its credit facility as of

June 8, 2020.

Due to the impacts of COVID-

and the continued closure of a majority of our corporately managed stores, our financial performance in the

second

quarter of fiscal

2020

will be negatively impacted. The Company's liquidity

may

be negatively impacted if stores do

not

resume normal operations and the Company

may

be required to pursue additional sources of financing to meet its financial obligations. Obtaining such financing is

not

guaranteed and is largely dependent on market conditions and other factors. The Company believes that its current cash balance, along with the actions taken as outlined above, provide it with sufficient current liquidity. Future impact of COVID-

may

require further actions by the Company to improve its cash position, including but

not

limited to, monetizing Company assets including the Company owned warehouse in Ohio, inventory, implementing further employee furloughs, and foregoing capital expenditures and other discretionary expenses.

Significant Accounting Policies

The Company's significant accounting policies are summarized in Note

to the consolidated financial statements included in our Form

-K for the year ended

February 1, 2020.

An update and supplement to these policies is needed for the Company's accounting for government assistance, long-live asset impairment, and lease modifications as a result of activity during the

first

quarter of fiscal

2020.

Government Grants

The Company applied for reimbursement of payroll expenses in certain jurisdictions through COVID-

related government programs for payroll paid to employees who were paid while

not

providing services to the Company prior to the end of the

first

quarter of fiscal

2020.

These programs require the Company to apply to the government for reimbursement of wages based on the applicable laws and programs within each jurisdiction. Through review of and application to these programs, the Company believes it qualifies for such reimbursement, and it is probable that the expenses will be reimbursed. As a result, the Company recorded a reduction to expenses of approximately

$1.5

million related to these wages within the Selling, general and administrative line within the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the period ending

May 2, 2020.

In addition, a portion of these amounts was received subsequent to the end of the quarter.

Long-live Assets, including right-of-use operating lease assets

Whenever facts and circumstances indicate that the carrying value of long-lived assets and right-of-use operating lease assets

may

not

be recoverable, the carrying value is reviewed. If this review indicates that the carrying value of the asset will

not

be recovered, as determined based on projected undiscounted cash flows related to the asset over its remaining life, the carrying value of the asset is reduced to its estimated fair value. The Company typically performs an annual assessment of the store assets in the direct-to-consumer (“DTC”) segment, based on operating performance and forecasts of future performance. As a result of the COVID-

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 certain 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. The charge is recorded in Store asset impairment within the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). These impairment charges were primarily driven by lower than projected revenues and the effect of store closures as a result of the COVID-

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 recorded impairment charges of

$5.9

million on right-of-use assets into retained earnings as a result of the adoption of ASC

842

Leases.

The determination of estimated market rent used in the fair value estimate of the Company’s operating lease assets included within the respective store asset group requires significant management judgment. Changes in these estimates could have a significant impact on whether long-lived store assets should be further evaluated for impairment and could have a significant impact on the resulting impairment charge. The significant estimates, all of which are considered Level

inputs, used in the fair value methodology include: the Company’s expectations for future operations and projected cash flows, including revenues, operating expenses, and market conditions.

Lease modifications

April 2020,

the FASB issued guidance indicating that entities

may

elect

not

to evaluate whether a concession provided by lessors is a lease modification. Under existing lease guidance, an entity would have to determine if a lease concession was the result of a new arrangement reached with the landlord, which would be accounted for under the lease modification framework, or if the concession was under the enforceable rights and obligations that existed in the original lease, which would be accounted for outside the lease modification framework. The FASB guidance provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. During the

first

quarter of

2020,

the Company did

not

modify any leases as a result of the COVID-

pandemic and as a result, the Company has

not

yet made a policy election with respect to lease modifications. Refer to Note

to the consolidated financial statements for further discussion regarding the Company's leases.