BUILD-A-BEAR WORKSHOP INC

Build-A-Bear Workshop, Inc. and subsidiaries (collectively, the “Company”) was formed in1997 as a mall-based, experiential specialty retailer for children. The Company has evolved to become a leading global "retailtainment" brand on a mission to add a little more heart to life. The Company sells its products through its 375 corporately-managed locations operated primarily in leased mall locations in the U.S., Canada, the Republic of Ireland, and the U.K. along with its e-commerce sites. As of the balance sheet date, operations in foreign countries where the Company doesnot have corporately-managed locations are through franchise agreements. The Company also sold product through its partner-operated model at 178 stores in which it sells its products on a wholesale basis to other companies that then in turn execute the Company's retail experience.

The Company’s consolidated financial statements have been prepared in accordance U.S. GAAP.

For each accounting topic that is addressed in its own note, the description of the accounting policy* may*be found in the related note. The Company’s other significant accounting policies applied in the preparation of the accompanying consolidated financial statements are as follows:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Build-A-Bear Workshop, Inc. and its wholly-owned subsidiaries. All intercompany accounts are eliminated in consolidation.

Fiscal Year

The Company operates on a52- or53-week fiscal year ending on the Saturday closest to* January**31.* The periods presented in these financial statements are fiscal2025 (52 weeks ended* January 31, 2026*), fiscal2024 (52 weeks ended* February 1, 2025*) and fiscal2023 (53 weeks ended* February 3, 2024*). References to years in these financial statements relate to fiscal years or year-ends rather than calendar years.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash, money market funds, and short-term highly liquid investments with an original maturity ofthree months or less held in both domestic and foreign financial institutions. In addition, the Company has a long-term deposit to satisfy contractual terms with the UK Customs Authority (unrelated to the matter discussed in Note* *10 - Commitments and Contingencies). The Company also has deposits from franchisees under contractual agreements which are refundable. The long-term and franchisee deposits are considered restricted cash and disclosed within the supplemental disclosure within the consolidated statement of cash flows. Cash equivalents also include amounts due fromthird-party financial institutions for credit and debit card transactions. The carrying amount of cash and cash equivalents approximates fair value, given the short maturity of those instruments.

The majority of the Company’s cash and cash equivalents exceed federal deposit insurance limits. The Company hasnot experienced any losses in such accounts and management believes that the Company isnot exposed to any significant credit risk on cash, cash equivalents, and restricted cash.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on an average-cost basis. Inventory includes supplies of $4.5 million and $3.5 million as of* January 31, 2026* and* February 1, 2025*, respectively. A reserve for estimated shortage is accrued throughout the year based on detailed historical averages. The inventory reserve was $1.1 million as of* January 31, 2026* and $1.2 million as of* February 1, 2025*.

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Receivables

Receivables are recorded at invoiced amounts andconsist primarily of amounts due to the Company in relation to wholesale and corporate product sales, franchisee royalties and product sales, tenant allowances, certain amounts due from taxing authorities, receivables due from insurance providers, and licensing revenue. The Company assesses the collectability of all receivables on an ongoing basis by considering its historical credit loss experience, current economic conditions, and other relevant factors. At the beginning of fiscal2023, the Company adopted ASUNo. 2016-13, “Financial Instruments - Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments.” This ASU requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts.

Property and Equipment

Property and equipment consist of leasehold improvements, furniture and fixtures, computer equipment and software, building and land and are stated at cost. Leasehold improvements are depreciated using the straight-line method over the shorter of the useful life of the assets or the life of the lease ranging fromone toten years. Furniture and fixtures and computer equipment are depreciated using the straight-line method over the estimated service lives ranging from three toseven years. Computer software includes certain costs, including internal payroll costs incurred in connection with the development or acquisition of software for internal use and is amortized using the straight-line method over a period ofthree tofive years. New store construction deposits are recorded at the time the deposit is made as construction-in-progress and reclassified to the appropriate property and equipment category at the time of completion of construction, when operations of the store commence. Maintenance and repairs are expensed as incurred and improvements are capitalized. Gains or losses on the disposition of fixed assets are recorded upon disposal.

Leases

The majority of the Company's leases relate to retail stores, corporate offices, and storage locations. For leases with terms greater than12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Most retail store leases have an original term offive toten-year base period and the term can be extended on a lease-by-lease basis with additional terms that are typically much shorter than the original lease term giving the Company lease optionality. The renewal options arenot included in the measurement of the right of use assets and right of use liabilities unless the Company is reasonably certain to exercise the optional renewal periods. Some leases also include early termination options, which can be exercised under specific conditions. Additionally, the Company* mayoperate stores for a period of time on a month-to-month basis after the expiration of the lease term. The Company's lease agreements donot* contain any material residual value guarantees or material restrictive covenants. Certain leases contain incentives, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property. These incentives reduce the right-of-use asset related to the lease and are amortized through the right-of-use asset as reductions of expense over the lease term.

The Company's leases typically contain rent escalations over the lease term and the Company recognizes expense for these leases on a straight-line basis over the lease term. The Company recognizes the related rental expense on a straight-line basis and records the difference between the recognized rental expense and amounts payable under the lease as part of the lease right-of-use asset. Some of the Company's leases include rent escalations based on inflation indexes and fair market value adjustments. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. Certain leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the store’s sales in excess of stipulated amounts and certain leases* may*contain rental provisions that only include a provision for a percentage of a store's total sales, instead of a fixed base rent amount. Such rents based on a percentage of store's total sales are recorded as variable lease expenses.

The Company has elected the practical expedient allowed by the standard to account for all fixed consideration in a lease as a single lease component. Therefore, the lease payments used to measure the lease liability for these leases include fixed minimum rentals along with fixed operating costs such as common area maintenance and utilities.

Most of the Company’s leases donot provide a readily available implicit interest rate. Therefore, the Company estimates the incremental borrowing discount rate based on information available at lease commencement. The discount rates used are indicative of a synthetic credit rating based on quantitative and qualitative analysis and adjusted to estimate a secured credit rating. For non-U.S. locations, a risk-free rate yield based on the currency of the lease is used to adjust the estimate of the incremental borrowing rate.

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Long-lived Assets

Whenever facts and circumstances indicate that the carrying value of a long-lived asset (asset group) and right-of-use operating lease assets* may**not* be recoverable, the carrying value of those assets is reviewed for potential impairment. If this review indicates that the carrying value of the asset (asset group) willnot be recovered, as determined based on projected undiscounted cash flows related to the asset (asset group) over its remaining life, the carrying value of the asset (asset group) is reduced to its estimated fair value. The Company typically performs an annual assessment of its store assets in the DTC segment, based on operating performance and forecasts of future performance. For the purposes of evaluating store assets for impairment, the Company has determined that each store location is an asset group, inclusive of the right-of-use asset attributable to each store. In periods where the Company identifies indicators of impairment for its store fleet, the Company performs a recoverability test for these assets by comparing the estimated undiscounted future cash flows over the remaining useful life of the asset (asset group) to the carry value of the asset (asset group). The estimated undiscounted future cash flows involve expectations for future operations and projected cash flows, including estimates of revenue, operating expenses and market conditions. Based on this, the Company determines if certain stores had long-lived and right-of-use assets with carrying values that exceed their estimated undiscounted future cash flows for the remaining useful life of the respective assets.

An impairment charge is recognized to the extent the carrying value exceeded the fair value of the asset (asset group). The Company estimates fair values of these long-lived assets based on its discounted future cash flow analysis for the remaining useful life of the asset or its market rent assessment. An individual asset within an asset group isnot impaired below its estimated fair value. Asset impairment charges are recorded within the cost of merchandise sold - retail expense within the Consolidated Statement of Operations and Comprehensive Income. The Company's analysis identifiedno indicators of impairment during fiscal2025 for long-lived assets. The Company's analysis identified indicators of impairment attwo retail locations and the Company incurred immaterial impairment charges during fiscal2024 for long-lived assets in the Company's DTC segment.

The estimates, all of which are considered Level3 inputs, used to calculate the fair value of the asset (asset group) include: the Company’s expectations for future operations and projected cash flows, including revenues, operating expenses including market rents, and market conditions. Changes in these estimates could have an impact on whether long-lived store assets should be further evaluated for impairment and could have a significant impact on the resulting impairment charge.

Other Assets, net

Other assets consist primarily of the non-current portion of prepaid income taxes and deferred costs related to franchise agreements, financing agreements, and capitalized film production costs. Deferred franchise costs are initial costs related to the Company’s franchise agreements that are deferred and amortized over the life of the respective franchise agreement. Deferred financing costs are the initial issuance costs and fees incurred in obtaining the Company's new credit agreement. The Company hadno outstanding borrowings at the beginning of the facility or at of the date of thesecond amendment, therefore these costs and fees incurred for the original agreement and amendment were recorded as a deferred asset and the unamortized costs will be amortized over the length of the amended agreement. Film production costs include capitalizable direct costs, production overhead, interest and development costs and are stated at the lower of cost, less accumulated amortization, or fair value.

Entertainment Production Costs

Costs of producing entertainment assets, which include direct costs, production overhead and development costs, are capitalized when incurred and are stated at the lower of cost, less accumulated amortization, or fair value. For film related costs, the Company expects assets to be monetized individually and are amortized using the individual film-forecast-computation method which amortizes such costs in the same ratio that current period actual revenue bears to the estimated remaining unrecognized total revenues (ultimate revenue). Ultimate revenue includes estimates over a periodnot to exceedten years from the date of initial release of the film. Participation costs and residuals are accrued and expensed over the applicable product life cycle based upon the ratio of the current period's revenues to the estimated remaining total revenues for each production.

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Costs of entertainment assets are subject to recoverability assessments, whenever events or changes in circumstances indicate that the fair value of the entertainment asset* maybe less than the unamortized cost, which for content predominantly monetized individually, involves comparing the estimated fair values with the unamortized cost. The fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the entertainment assets. The discounted cash flow analysis includes cash flow estimates of ultimate revenue as well as a discount rate (a Level3* fair value measurement). The discount rate used in the Company’s discounted cash flow model reflects the time value of money, expectations about variation in the amount or timing of the most likely cash flows, and the price market participants would seek for bearing the uncertainty inherent with the entertainment assets. The amount by which the unamortized costs of entertainment assets exceed their estimated fair values is written off. As of* January 31, 2026* and* February 1, 2025*, the Company had net capitalized entertainment assets of $4.5 million and $4.2 million, respectively. The* January 31, 2026* balance for entertainment assets is comprised of unamortized, released assets and several in-development entertainment projects.

The main purpose of the Company's entertainment assets is to drive consumer engagement with its own intellectual property, similar to a marketing campaign. As such, the amortization of entertainment assets and any related impairment charges are recorded as advertising expenses with the Selling, general, and administrative line within the Consolidated Statement of Operations and Comprehensive Income and includes this expense in the financial information of the Commercial reportable segment presented in Note15 - Segment Information. Additionally, as of* January 31, 2026*, the Company performed a recoverability assessment of the entertainment assets and determined there wereno indicators of impairment. The Company recorded a total of $0.5 million in entertainment assets amortization in fiscal2025 and a total of $1.1 million in fiscal2024.

Revenue

See Note3 — Revenue for additional accounting information.

Cost of Merchandise Sold

Cost of merchandise sold - retail includes the cost of the merchandise, tariff costs, royalties paid to licensors ofthird-party branded merchandise; store occupancy cost, including store depreciation; cost of warehousing and distribution; packaging; stuffing; damages and shortages; and shipping and handling costs incurred in shipment to consumers. Cost of merchandise sold - commercial includes the cost of the merchandise, including royalties paid to licensors ofthird-party branded merchandise; cost of warehousing and distribution; packaging; stuffing; damages and shortages; and shipping and handling costs incurred in shipment to customers.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses include store payroll and related benefits, advertising, credit card fees, store supplies and store closing costs, as well as central office management payroll and related benefits, travel, information systems, accounting, insurance, legal, and public relations costs. It also includes depreciation and amortization of central office leasehold improvements, furniture, fixtures, and equipment. In addition, bad debt expenses and accounts receivable related charges are included. Further, it includes store preopening expenses which represent costs incurred prior to store openings, remodels and relocations including certain store set-up, labor and hiring costs, rental charges, payroll, government grants, marketing, travel and relocation costs and recoveries.

Advertising

The costs of advertising and marketing programs are charged to operations in thefirst period the program takes place. Advertising expense was $21.0 million, $21.0 million and $24.3 million for fiscal years2025,2024 and2023, respectively.

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Income Taxes

Income taxes are accounted for using a balance sheet approach known as the liability method. The liability method accounts for deferred income taxes by applying the rate, based on enacted tax law, that will be in effect in the period in which the temporary differences between the book basis and the tax basis of assets and liabilities reverse or are settled. Deferred taxes are reported on a jurisdictional basis.

Tax positions are reviewed at least quarterly and adjusted as new information becomes available. The recoverability of deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These estimates of future taxable income inherently require significant judgment. To the extent it is considered more likely thannot that a deferred tax asset will benot recovered, a valuation allowance is established.

The Company assesses its total liability for uncertain tax positions on a quarterly basis. The Company recognizes estimated interest and penalties related to uncertain tax positions in income tax expense. See Note8—Income Taxes for further discussion.

IncomePer Share

Basic income per share is dete rmined by dividing net income allocated to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per share reflects the potential dilution that could occur from outstanding restricted stock awards and if options to issue common stock were exercised. In periods in which the inclusion of such instruments is anti-dilutive, the effect of such securities isnot given consideration.

Stock-Based Compensation

The Company has share-based compensation plans covering certain management groups and its Board of Directors. The Company accounts for share-based payments utilizing the fair value recognition provisions of ASC718 Compensation - Stock Compensation. The Company recognizes compensation cost for graded-vested equity awards on a straight-line basis over the requisite service period for the entire award and forfeitures as they occur. See Note12 —"Stock Incentive Plans" for additional information.

ComprehensiveIncome

Comprehensive income is comprised of net income and foreign currency translation adjustments.

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Fair Value of Financial Instruments

For purposes of financial reporting, management has determined that the carrying value of financial instruments, including cash, cash equivalents and restricted cash, receivables, short term investments, accounts payable and accrued expenses, approximates fair value at* January 31, 2026* and* February 1, 2025*.

Use of Estimates

The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The assumptions used by management in future estimates could change significantly due to changes in circumstances, including, butnot limited to, challenging economic conditions. Accordingly, future estimates* may*change significantly. Significant items subject to such estimates and assumptions include the calculation of revenue from gift card breakage, valuation of long-lived asset for asset impairments, income tax valuation allowances on deferred income tax assets, and the determination of deferred revenue under the Company’s customer loyalty program.

Sales Tax Policy

The Company’s revenues in the consolidated statement of operations are net of sales taxes.

Foreign Currency

Assets and liabilities of the Company’s foreign operations with functional currencies other than the U.S. dollar are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the year. Translation adjustments are reported in accumulated other comprehensive income, a separate component of stockholders’ equity. Gains and losses resulting from foreign exchange transactions, including the impact of the re-measurement of the Company’s balance sheet, are recorded as a component of selling, general and administrative expenses. The Company recorded a gain of $1.8 million in fiscal2025, and loss of $0.2 million and $0.1 million related to foreign currency in fiscal 2024 and2023, respectively.

Recent Accounting Pronouncements*** – Adopted in the current year***

In* December 2023,the FASB issued ASUNo.* 2023-09, "Income Taxes (Topic740): Improvements to Income Tax Disclosures." The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. We adopted this ASU on a prospective basis effective* February 2, 2025.Refer to Note8*- Income Taxes for the inclusion of new disclosures required.

Recent Accounting Pronouncements*** – Pending adoption***

In* November 2024,the FASB issued ASUNo.* 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses." The amendment requires a public business entity (PBE) to disclose, on an annual and interim basis, disaggregated information about certain income statement line items in a tabular format in the notes to the financial statements. The amendments are effective for fiscal years beginning after* December 15, 2026,and interim periods within fiscal years beginning after December 15, 2027.*Management is currently evaluating this ASU to determine its impact on the Company's disclosures.

In* September 2025,the FASB issued ASUNo.* 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic350-40): Targeted Improvements to the Accounting for Internal-Use Software. The ASU simplifies the capitalization guidance by removing all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout ASC350-40. The ASU is effective for annual periods beginning after* December 15, 2027,and interim periods within those fiscal years. Adoption of this ASU can be applied prospectively for reporting periods after its effective date; or follow a modified transition approach that is based on the status of the respective projects and whether software costs were capitalized before the date of adoption; or retrospectively to any or all prior periods presented in the consolidated financial statements. Early adoption is permitted. We are currently evaluating the provisions of this ASU and donot* expect this ASU to have a material impact on our consolidated financial statements.

In* December 2025,the FASB issued ASUNo.* 2025-11, Interim Reporting (Topic270): Narrow-Scope Improvements. The ASU clarifies interim disclosure requirements and the applicability of Topic270. The objective of the amendments is to provide further clarity about the current interim disclosure requirements. The ASU is effective for interim reporting periods within annual reporting periods beginning after* December 15, 2027.Adoption of this ASU can be applied either a prospective or a retrospective approach. Early adoption is permitted. We are currently evaluating the provisions of this ASU and donot* expect this ASU to have a material impact on our consolidated financial statements.

In* December 2025,the FASB issued ASUNo.* 2025-12, Codification Improvements. The ASU addressesthirty-three items, representing the changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. Generally, the amendments in this Update arenot intended to result in significant changes for most entities. The ASU is effective for interim reporting periods within annual reporting periods beginning after* December 15, 2026.The adoption method of this ASU mayvary, on an issue-by-issue basis. Early adoption is permitted. We are currently evaluating the provisions of this ASU and donot* expect this ASU to have a material impact on our consolidated financial statements.



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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 accounts for revenue in accordance with Topic606, Revenue from Contracts with Customers. The Company's disaggregated revenue is fully disclosed as net sales to external customers by reporting segment and by geographic area (See Note15 — "Segment Information" for additional information). The Company's direct-to-consumer reporting segment represents nearly 92% of consolidated revenue. The majority of these sales transactions are single performance obligations that are recorded when control is transferred to the customer.

The following is a description of principal activities from which the Company generates its revenue, by reportable segment.

The Company’s direct-to-consumer segment includes the operating activities of corporately-managed stores, other retail-delivered operations and online sales. Direct-to-consumer revenue is recognized when control of the merchandise is transferred to the customer and for the Company’s online sales, control generally transfers upon delivery to the customer. Revenue is measured as the amount of consideration, including any discounts or incentives, the Company expects to receive in exchange for transferring the merchandise. Product returns have historically averaged less thanone-half ofone percent due to the interactive nature of sales, where consumers customize their own stuffed animal. The Company has elected to exclude from revenue all collected sales, value-add and other taxes paid by its customers.

For the Company’s gift cards, revenue is deferred for single transactions until redemption including any related gift card discounts. Approximately 80% of gift cards issued have been redeemed within three years of issuance and over the lastthree years, approximately 65% of gift cards issued have been redeemed within thefirst twelve months. In addition, unredeemed gift cards or breakage revenue is recorded in proportion to the customer’s redemption pattern using an estimated breakage rate based on historical experience.

Following the reopening of stores after the pandemic, the Company experienced lower gift card redemption rates for all periods of outstanding activated gift cards compared to historical redemption patterns observed prior to fiscal year2020, which impacted the gift card breakage rate. Management believes that the redemption behavior observed during the pandemic wasnot indicative of long-term customer behavior and accordingly adjusted the historical redemption data used to calculate the breakage rate. In more recent periods, gift card redemption patterns have generally returned to levels consistent withpre‑2020 experience.

The Company continues to evaluate expected breakage annually and adjusts the breakage rates in thefourth quarter of each year, or other times, if significant changes in customer behavior are detected. Changes to breakage estimates impact revenue recognition prospectively. Further, given the magnitude of the Company's gift card liability, the changes in breakage rates could have a significant impact on the amount of breakage revenue recognized in future periods. For the fiscal years ended* January 31, 2026*,* February 1, 2025*, and* February 3, 2024*, net retail sales included gift card breakage revenue of $6.2 million, $6.5 million and $6.3 million, respectively. In regard to the consolidated balance sheet, contract liabilities for gift cards are classified as gift cards and customer deposits.

For certain qualifying transactions, a portion of revenue transactions are deferred for the obligation related to the Company’s loyalty program or when a material right in the form of a future discount is granted. In these transactions, the transaction price is allocated to the separate performance obligations based on the relative standalone selling price. The standalone selling price for the points earned for the Company’s loyalty program is estimated using the net retail value of the merchandise purchased, adjusted for estimated breakage based on historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired. Loyalty program points expire if there isno qualifying account activity for a period of12 months. The Company issues certifications daily for those loyalty program members who have earned100 or more points in the previous day in North America and50 points or more in the U.K. with certifications historically expiring infour months ifnot redeemed. The Company assesses the redemption rates of its certifications on a quarterly basis to update the rate at which loyalty program points turn into certifications and the rate that certifications are redeemed. In regard to the consolidated balance sheet, contract liabilities related to the loyalty program are classified as deferred revenue and other.

The Company’s commercial segment includes transactions with other businesses and are mainly comprised of wholesale sales of merchandise, supplies and fixtures, licensing the Company’s intellectual properties forthird-party use, and revenues generated from entertainment activities. Revenue for wholesale sales is recognized when control of the merchandise or fixtures is transferred to the customer, which generally occurs upon delivery to the customer. The license agreements provide the customer with highly interrelated rights that arenot distinct in the context of the contract and, therefore, have been accounted for as a single performance obligation and recognized as licensee sales occur. If the contract includes a guaranteed minimum, the minimum guarantee is recognized as licensee sales occur over the guarantee term until such time as royalties earned through licensee sales exceed the minimum guarantee. The Company classifies these guaranteed minimum contract liabilities as deferred revenue and other on the consolidated balance sheet. Entertainment revenue is generated through the sale of entertainment assets directly to customers or through licensing agreements.

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The Company’s international franchising segment includes the activities with franchisees who operate store locations in certain countries and includes development fees, sales-based royalties, merchandise, supplies and fixture sales. The Company’s obligations under the franchise agreement are ongoing and include operations and product development support and training, generally concentrated around new store openings. These obligations are highly interrelated rights that arenot distinct in the context of the contract and, therefore, have been accounted for as a single performance obligation and recognized as franchisee sales occur. If the contract includes an initial,one-time nonrefundable development fee, this fee is recognized on a straight-line basis over the term of the franchise agreement, which* may*extend for periods up to 25 years. The Company classifies these initial,one-time nonrefundable franchise fee contract liabilities as deferred revenue and other on the consolidated balance sheet. Revenue from merchandise and fixture sales is recognized when control is transferred to the franchisee which generally occurs upon delivery to the customer.

The Company also incurs expenses directly related to the startup of new franchises, which* may*include finder’s fees, legal and travel costs, expenses related to its ongoing support of the franchisees, and employee compensation. Accordingly, the Company’s policy is to capitalize the finder’s fee, an incremental cost, and expense all other costs as incurred. The Company amortizes these capitalized costs into expense in the same pattern as the development fee as described previously.

Allowance for Expected Credit Losses

(1) Other receivables allowance for doubtful accounts represent uncollectible accounts written off, recoveries and the impact of currency translation

The table below presents information related to the lease costs for operating leases for the periods presented (in thousands).

(1) Variable lease costs consist of leases with variable rent structures, which are intended to increase flexibility in an environment with expected high sales volatility and provide a natural hedge against potential sales declines.

The table below presents supplemental cash flow information related to leases for the periods presented (in thousands).

As of* January 31, 2026*, the weighted-average remaining operating lease term was 6.3 years and the weighted-average discount rate was 7.0% for operating leases recognized on the consolidated balance sheet.

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The Company recorded immaterial impairment charges during fiscal2025, fiscal2024 and fiscal2023 against its right-of-use operating lease assets in the Company's DTC segment.

Undiscounted cash flows

The table below reconciles the undiscounted cash flows for each of thefirst five years and total remaining years to the operating lease liabilities recorded on the balance sheet (in thousands).

As of* January 31, 2026*, the Company had additional executed leases that hadnot yet commenced with operating lease liabilities totaling $5.7 million. These leases are expected to commence in thefirst andsecond quarters of fiscal2026 with lease terms ofthree toten years.

Prepaid expenses and other current assets consist of the following (in thousands):

(1) Prepaid occupancy consists of prepaid expenses related to non-lease components.

(2) Prepaid taxes consist primarily of prepaid federal and state income tax.

(3) Other consists primarily of prepaid expenses related to IT maintenance contracts and software as a service.

Other non-current assets consist of the following (in thousands):

(1) Other consists primarily of deferred financing costs related to the Company's credit facility.

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Property and equipment, net consist of the following (in thousands):

For fiscal2025 and2024, depreciation and amortization expense was $15.0 million and $14.8 million, respectively.

The Company recorded immaterial impairment charges during fiscal2025 and2024 for long-lived assets in the Company's DTC segment.

Accrued expenses consist of the following (in thousands):

(1) Accrued rent and related expenses consist of accrued costs associated with non-lease components.

(2) Accrued expense - other consists of costs associated with legal accruals.

For fiscal2025 and2024, defined contribution expense was $1.4 million and $1.4 million, respectively.

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The Company’s income before income taxes from domestic and foreign operations (which include the U.K., Canada, China, and Ireland), is as follows (in thousands):

The components of the income tax expense (benefit) are as follows (in thousands):

The provision for income taxes was $15.0 million infiscal2025 compared to $15.4 million infiscal2024. The2025 effective rate of 22.3% differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the tax benefit of the foreign-derived intangible income (FDII) deduction and a favorable tax position affecting its U.K. net operating loss (NOL) from prior years. The2024 effective rate of 22.9% differed from the statutory rate of 21% primarily due to state income tax expense partially offset by the benefit of the FDII deduction.

The Company periodically assesses whether it is more likely thannot that it will generate sufficient taxable income to realize its deferred income tax assets based on all available positive and negative evidence. Changes in the valuation allowance infiscal2025 are primarily related to return-to-provision true-ups and functional currency fluctuations.

For the year ended* January 31, 2026,the Company adopted ASU2023*-09 on a prospective basis. Differences between the provision for income taxes at the U.S. federal statutory income tax rate and the provision in the consolidated statements of operations are as follows:

(1) During the year ended* January 31, 2026,state taxes in California, Florida, Illinois, New York, and Texas comprised more than50%* of the tax effect in this category.

Differences between the provision for income taxes at the U.S. federal statutory income tax rates and the provision prior to the adoption of ASU2023-09 is as follows:

Income taxes paid, net of refunds received, for the year ended* January 31, 2026*are as follows:

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Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):

As of* January 31, 2026,the Company had gross NOL carryforwards of approximately $6.4 million, $5.3 million of which relate to the U.K. where NOLs haveno* expiration date, and $1.1 million of which relate to China where NOLs are carried forward forfive years subsequent to the year in which the loss was incurred.

The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it isnot practical to estimate the income tax liability on the outside basis differences.

As of* January 31, 2026,and February 1, 2025,the Company hadno unrecognized tax benefits. As of February 3, 2024,the Company had total unrecognized tax benefits of $0.1 million, of which $0.1 million would favorably impact the Company’s provision for income taxes if recognized. In thefourth* quarter of fiscal year2024, the Company settled all unrecognized tax benefits of $0.1 million. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties included within other liabilities in the consolidated balance sheets was $0.0 million for each of the years ended* January 31, 2026,and February 1, 2025.The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the consolidated statement of operations. For the years ended January 31, 2026,and February 1, 2025,*the Company recognized an expense of $0.0 million and less than $0.1 million, respectively, for interest and penalties.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

The following tax years remain open in the Company’s major taxing jurisdictions as of* January 31, 2026:*

The Company had a revolving credit and security agreement with PNC Bank, as agent, which was set to expire on* December 17, 2026,*and provided for a secured revolving loan in aggregate principal of up to $25.0 million, subject to a borrowing base formula.

On* December 31, 2025,the Company entered into a Third Amendment to revolving credit and security agreement (the “Third Amendment”) with PNC Bank. The Third Amendment (i) increased the base borrowing amount under the facility from $25.0 million to $40.0 million (while retaining the accordion feature allowing such amount to increase up to $50.0 million); (ii) reduced the interest rates for borrowings under the facility; (iii) extended the maturity date of the Credit Agreement to December 31, 2030;*and (iv) reduced the facility fee related to undrawn availability. The Third Amendment also updated various provisions regarding compliance with sanctions and anti-money laundering laws, international trade laws, and implemented certain other technical amendments.

As amended, the new revolving credit and security agreement provides for a senior secured revolving loan in aggregate principal amount of up to $40.0 million (subject to a borrowing base formula), which* maybe increased with the consent of the lenders by an amountnot* to exceed $10.0 million, subject to the conditions set forth in the agreement (the “Increase Option”). The new revolving credit and security agreement continues to provide for swingline loans of up to $5.0 million and the issuance of standby or commercial letters of credit of up to $5.0 million.

As of* January 31, 2026*, borrowings under the new agreement would bear interest by reference to, at the borrower’s option, either (a) a base rate determined under the agreement, or (b) at a rate based on SOFR reference rate, plus in either case a margin based on average undrawn availability as determined in accordance with the agreement, but the Third Amendment reduced such rates. The Third Amendment also reduced the facility fee percentage on undrawn commitments under the agreement from 0.25% to 0.20%.

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The new agreement continues to require the Company to comply withone financial covenant, specifically, that the Company maintain availability (as determined in accordance with the agreement) at all times equal to or greater than the greater of (a)10.0% of the Loan Cap and (b) $1,875,000 (subject to increase upon exercise of the Increase Option). The Third Amendment increased the “Loan Cap” to the lesser of (1) $40.0 million less the outstanding amount of loans and letters of credit under the agreement and (2) the borrowing base from time to time under the agreement.

The Third Amendment contains customary events of default, including without limitation events of default based on payment obligations, material inaccuracies of representations and warranties, covenant defaults, final judgments and orders, unenforceability of the Credit Agreement, material ERISA events, change in control, insolvency proceedings, and defaults under certain other obligations. An event of default* may*cause the applicable interest rate and fees to increase by 2% until such event of default has been cured, waived, or amended.

The Third Amendment contains typical negative covenants, including, among other things, that the Borrower willnot incur indebtedness except for permitted indebtedness or make any investments except for permitted investments, declare dividends or repurchase its stock except as permitted, acquire any subsidiaries except in connection with a permitted acquisition, or merge or consolidate with any other entity or acquire all or substantially all of the assets of any other company outside the ordinary course of business.

The Company is in compliance with the new revolving credit and security agreement covenants. As of* January 31, 2026*, the Company had a borrowing base of$40.0 million. The Company hadno outstanding borrowings as of* January 31, 2026*.

Litigation

In the normal course of business, the Company is subject to legal proceedings, government inquiries and claims, and other commercial disputes. Ifone or more of these matters has an unfavorable resolution, it is possible that the results of operations, liquidity or financial position of the Company could be materially affected in any particular period. The Company accrues a liability for these types of contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. Gain contingencies are recorded when the underlying uncertainty has been settled.

Assessments made by the U.K. customs authority in2012 were appealed by the Company, which has paid the disputed duty, strictly under protest, pending the outcome of the continuing dispute, and this is included in receivables, net in the DTC segment. The U.K. customs authority contested the Company's appeal. Rulings by the First Tier Tribunal in* November 2019and Upper Tribunal in March 2021held that duty was due on some, butnot* all, of the products at issue. The Company petitioned the Court of Appeal for permission to appeal certain elements of the Upper Tribunal decision, and in early* November 2021,a judge granted the Company's petition for permission to appeal those elements of the Upper Tribunal decision on some, butnot* all, of the grounds of appeal that the Company had put forward. An appeal was heard by the Court of Appeal during thefirst quarter of fiscal2022, and the Court of Appeal dismissed the appeal in thethird quarter of fiscal2022. During thefourth quarter of fiscal2022, the UK Supreme Court declined to hear the appeal. The Company is engaging with the customs authority to attempt to resolve all outstanding issues following the application of the determined principles. The case will return to the lower tribunal for a final ruling if outstanding issues cannot be resolved. The Company maintains a provision against the related receivable, based on a current evaluation of collectability, using the latest facts available in the dispute. As of* January 31, 2026*, the Company had a gross receivable balance of $4.7 million and a reserve of $3.8 million, leaving a net receivable of $0.9 million. The Company believes that the outcome of this dispute willnot have a material adverse impact on the results of operations, liquidity, or financial position of the Company.

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The Company computes both basic and diluted income per common share. The following table sets forth the computation of basic and diluted income per share (in thousands, except share and per share data):

In calculating diluted earnings per share for fiscal2025,2024 and2023, there were 20,577,21,828, and 23,324 shares of common stock, respectively, that were outstanding at the end of the period that werenot included in the computation of diluted income per share due to their anti-dilutive effect under provisions of ASC260-10.

In2017, the Company adopted the Build-A-Bear Workshop, Inc.2017 Omnibus Incentive Plan (the*"2017* Plan").

On* April14,* 2020, the Board of Directors (the “Board”) of Build-A-Bear Workshop, Inc. (the “Company”) adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc.2020 Omnibus Incentive Plan (the*“2020* Incentive Plan”). On* June 11, 2020,at the Company’s2020* Annual Meeting of Stockholders (the “Annual Meeting”), the Company’s stockholders approved the2020 Incentive Plan. On* April11,* 2023, the Board adopted, subject to stockholder approval, the Build-A-Bear Workshop, Inc. Amended and Restated2020 Omnibus Incentive Plan (the “Restated2020 Incentive Plan”). On* June 8, 2023,at the Company’s2023* Annual Meeting of Stockholders (the “Annual Meeting”), the Company’s stockholders approved the Restated2020 Incentive Plan. The Restated2020 Incentive Plan, which is administered by the Compensation and Development Committee of the Board, permits the grant of stock options (including both incentive and non-qualified stock options), stock appreciation rights, other stock-based awards, including restricted stock and restricted stock units, cash-based awards, and performance awards pursuant to the terms of the Restated2020 Incentive Plan. The Restated2020 Incentive Plan will terminate on* April 11, 2033,unless earlier terminated by the Board. The total number of shares of the Company’s common stock authorized for issuance under the Restated2020* Incentive Plan increased by 800,000 to a maximum of 1,800,000 since its inception as the2020 Incentive Plan, subject to customary capitalization adjustments, substitutions of acquired company awards and certain additions of acquired company plan shares, plus shares that are subject to outstanding awards made under the2017 Plan that on or after* April 14, 2020** may*be forfeited, expire or be settled for cash.

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For the years ended* January 31, 2026*,* February 1, 2025* and* February 3, 2024*, Selling, general and administrative expense included stock-based compensation expense of $2.9 million, $2.2 million and $2.1 million, respe ctively. As of* January 31, 2026*, there was $5.0 million of total unrecognized compensation expense related to unvested stock awards which is expected to be recognized over a weighted-average period of 1.8 years. Future total shares available for options, non-vested stock and restricted stock grants were 750,030,857,838 and 1,010,666 at the end of2025,2024 and2023, respectively.

The following table is a summary of the balance and activity for the Plans related to stock options for the periods presented:

There wereno stock options granted during fiscal2025,2024 or2023. The expense recorded related to options granted was determined using the Black-Scholes option pricing model and the provisions of SAB107 and110, which allow the use of a simplified method to estimate the expected term of “plain vanilla” options.

The total grant date fair value of options exercised in fiscal2024 was $0.1 million and the total intrinsic value was $0.14 million. The Company generally issues new shares to satisfy option exercises.

The Company granted restricted stock awards that typically vest over aone tothree-year period. Recipients of time-based restricted stock awards have the right to vote and receive dividends as to all unvested shares, however, the receipt of such dividends is contingent on such time-based awards vesting. Recipients of performance-based restricted stock awards have the right to vote and receive dividends upon satisfaction of the performance criteria and certain of these awards’ dividend rights are also subject to time-based vesting. The following table is a summary of the balance and activity for the Plans related to unvested time-based and performance-based restricted stock granted as compensation to employees and directors for the periods presented:

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Infiscal2025**, the Committee awarded three-year performance-based restricted stock, established specific profitability and revenue objectives for fiscal2025, 2026, and2027, and assigned a weighting to each objective. Profitability is measured by the Company’s achievement of established cumulative consolidated EBITDA. Revenue will be measured by the Company's achievement of cumulative total revenue. The target number of shares awarded was 51,450 with a weighted average grant date fair value of $47.57 per share. If profitability and revenue exceed the threshold objectives, the performance-based restricted stock award has a payout opportunity ranging from 25% to 200% of the target number of shares.

In fiscal2024**, the Committee awarded three-year performance-based restricted stock, established specific profitability and revenue objectives for fiscal2024, 2025, and2026, and assigned a weighting to each objective. Profitability is measured by the Company’s achievement of established compound annual growth for consolidated EBITDA. Revenue will be measured by the Company's achievement of revenue growth, by meeting established compound annual growth rate targets for cumulative total revenue. The target number of shares awarded was 64,619 with a weighted average grant date fair value of $27.61 per share. If profitability and revenue exceed the threshold objectives, the performance-based restricted stock award has a payout opportunity ranging from 25% to 200% of the target number of shares.

In fiscal2023**, the Committee awarded three-year performance-based restricted stock, established specific profitability and revenue objectives for fiscal2023, 2024, and2025, and assigned a weighting to each objective. Profitability is measured by the Company’s achievement of established compound annual growth for consolidated EBITDA. Revenue will be measured by the Company's achievement of revenue growth, by meeting established compound annual growth rate targets for cumulative total revenue. The target number of shares awarded was 65,254 with a weighted average grant date fair value of $24.75 per share. If profitability and revenue exceed the threshold objectives, the performance-based restricted stock award has a payout opportunity ranging from 25% to 200% of the target number of shares.

As of* January 31, 2026*, the Company had recorded aggregate expense for the fiscal2023, 2024, and2025 three-year performance-based restricted stock awards of $1.5 million.

The vesting date fair value of shares that vested in fiscal2025,2024 and2023 was $2.5 million, $2.2 million and $2.1 million, respectively.

The following table summarizes the changes in outstanding shares of common stock for fiscal2025 and fiscal2024:

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Five vendors, each of whose primary manufacturing facilities are located in Asia, accounted for approximately 75% of inventory purchases in2025 and 69% in2024.

The Company’s operations are conducted through three operating segments consisting of DTC, commercial and international franchising. The DTC segment includes the operating activities of corporately-managed locations and other retail delivery operations in the U.S., Canada, the Republic of Ireland and the U.K., including the Company’s e-commerce sites and temporary stores. The commercial segment includes the Company’s transactions with other businesses, mainly comprised of wholesale activities, licensing the Company’s intellectual properties forthird party use, and entertainment activities. The international franchising segment includes the licensing activities of the Company’s franchise agreements with store locations in select countries in Asia, Australia, the Middle East, Africa, and South America. The operating segments have discrete sources of revenue, different capital structures and different cost structures. These operating segments represent the basis on which the Company’s Chief Executive Officer, who is also the Chief Operating Decision Maker ("CODM"), regularly evaluates the business in assessing performance, determining the allocation of resources and the pursuit of future growth opportunities. The CODM uses contribution margin to allocate resources across the reportable segments as part of the Company's long-range and annual planning processes, and to evaluate planned versus actual results when assessing segment operating performance. Accordingly, the Company has determined that each of its operating segments represent a reportable segment. Thethree reportable segments follow the same accounting policies used for the Company’s consolidated financial statements.

Following is a summary of the financial information for the Company’s reporting segments (in thousands):

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Total assets, depreciation and amortization, and capital expenditures for the Company's segments, as well as for Corporate and support, are as follows:

The Company’s reportable segments are primarily determined by the types of products and services that they offer. Each reportable segment* may*operate in many geographic areas. Revenues are recognized in the geographic areas based on the location of the customer or franchisee. The following schedule is a summary of the Company’s sales to external customers (in thousands):

For purposes of this table only:

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On* February 20, 2026,the U.S Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). The ultimate availability, timing, and amount of any potential refunds of such tariffs remain highly uncertain and are subject to further legal, regulatory, and administrative developments. Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may*be imposed, modified, or suspended, and the impacts of such actions on the Company's business. The Company continues to monitor and evaluate these developments and assess their potential impact on its business, financial condition, and results of operations.

(a)(2)* Financial Statement Schedules*