BUILD-A-BEAR WORKSHOP INC - Quarter Report: 2015 October (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended October 3, 2015

OR

For the transition period from              to              

Commission file number: 001-32320

BUILD-A-BEAR WORKSHOP, INC.

(Exact Name of Registrant as Specified in Its Charter)

(314) 423-8000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No   ☒

As of November 10, 2015, there were 16,385,392, issued and outstanding shares of the registrant’s common stock.

BUILD-A-BEAR WORKSHOP, INC.

INDEX TO 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)

(Unaudited)

(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 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 year ended January 3, 2015, as filed with the SEC, and the following:

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 our guests stuff, fluff, dress, accessorize and name their own teddy bears and other stuffed animals. As of October 3, 2015, we operated 257 stores in the United States, Canada and Puerto Rico (collectively, North America), 60 stores in the United Kingdom, Ireland and Denmark (collectively, Europe) and had 67 franchised stores operating internationally under the Build-A-Bear Workshop brand.

We operate in three segments; each segment shares the same infrastructure, including management, systems, merchandising and marketing, and generates revenues as follows:

Selected financial data attributable to each segment for the thirteen and thirty-nine weeks ended October 3, 2015 and September 27, 2014 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Our financial results in fiscal 2014 demonstrated the impact of the successful and consistent implementation of our key strategies of optimizing real estate, resetting the consumer value equation and rationalizing our expense structure. Our 2015 plan builds on the progress we made in 2014 and 2013 in implementing these key strategies, with a combination of continuous improvement of these initiatives and strategic expansion into additive opportunities. Specifically, we plan to expand into more places as we continue to improve our real estate model through selective new high-potential openings, a systematic refresh of our store base and strategic international expansion. We plan to reach more people as we continue to drive core consumer business and strategically expand our business with the over 12 year-old consumer segment. Additionally, we intend to sell more products by developing proprietary product stories along with re-launching an out-bound licensing program. We expect to do this more profitably as we continue to improve the value engineering of products and implement new systems that facilitate sales growth and increase efficiency.

We use comparable store sales as one of the performance measures for our business. Comparable store sales percentage changes are based on net retail sales, excluding our store-commerce sites and seasonal and event-based locations.  Stores are considered comparable beginning in their thirteenth full month of operation. Stores with relocations or remodels that result in a significant change in square footage are excluded from the comparable stores sales calculation until the thirteenth full month of operation after the change. Comparable store sales percentage changes for the thirteen and thirty-nine weeks ended October 3, 2015 are based on net retail sales as compared to the thirteen and thirty-nine weeks ended October 4, 2014. The percentage change in comparable store sales for the periods presented below is as follows:

We believe our positive consolidated comparable store sales for the periods presented are primarily attributable to the following factors:

We expect to improve comparable store sales through the following key initiatives:

Stores

Company-owned:

The table below sets forth the number of Build-A-Bear Workshop company-owned stores in North America and Europe for the periods presented:

During 2015, we expect to open stores in high potential destinations such as tourist locations, outlet malls and shop-in-shops. In the second half of 2015, we also began to systematically refresh our store base with our new “Discovery” format developed to improve productivity, optimize space and update our brand look. After completing value-engineering work on the design to move it from concept stage to standard model, we plan to open new stores in the format as well as systematically update our existing store fleet primarily in conjunction with natural lease events. We also expect to close select stores as a normal course of managing our real estate portfolio and ongoing operational planning.

International Franchise Locations:

Our first franchisee location was opened in November 2003. All franchised stores have similar signage, store layout, merchandise characteristics and guest experience as our company-owned stores. As of October 3, 2015, we had eight master franchise agreements, which typically grant franchise rights for a particular country or group of countries, covering an aggregate of 14 countries. The number of traditional international franchised stores opened and closed for the periods presented below are summarized as follows:

In 2015, one franchise agreement expired and was not renewed and two franchise agreements were terminated. 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 market potential for approximately 300 international stores outside of North America and Europe.

In 2015, our international strategy is to leverage the improving strength in our company-owned stores to restructure and extend our international footprint. Key franchisees have started to apply our successful real estate approach including opening pop-up stores to assess long-term potential and adding shop-in-shops with key partners. As of October 3, 2015, our franchisees were operating eight of these non-traditional locations which are not included in the store count presented above.

Results of Operations

The following table sets forth, for the periods indicated, selected statement of operations data expressed as a percentage of total revenues, except where otherwise indicated:

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Thirteen weeks ended October 3, 2015 compared to thirteen weeks ended September 27, 2014

Revenues

Net retail sales. Net retail sales for the thirteen weeks ended October 3, 2015 were $84.3 million compared to $85.6 million for the thirteen weeks ended September 27, 2014, a decrease of $1.3 million, or 1.5%. The components of this decrease are as follows:

We believe the changes in comparable store sales for the thirteen weeks ended October 3, 2015 are primarily attributable to a balanced product assortment that simultaneously and consistently focused on our four key consumer segments supported by elevated marketing programs. We believe this drove improvements in key metrics including dollars and units per transaction in both North America and Europe for both the thirteen weeks ended October 3, 2015 which contributed to growth in our comparable store sales.

Franchise fees and commercial revenue. Revenue from franchise fees was $0.5 million for the thirteen weeks ended October 3, 2015 compared to $0.6 million for the thirteen weeks ended September 27, 2014. The decrease was primarily attributable to a decline in the number of franchise stores in operation during the quarter. Commercial revenue was $0.8 million for the thirteen weeks ended October 3, 2015 compared to $0.5 million for the thirteen weeks ended September 27, 2014. This increase was primarily attributable to an increase in wholesale activities.

Costs and expenses

Retail gross margin. Retail gross margin increased to $38.2 million for the thirteen weeks ended October 3, 2015 from $37.4 million for the thirteen weeks ended September 27, 2014, an increase of $0.8 million, or 2.1%. As a percentage of net retail sales, retail gross margin was 45.3% for the thirteen weeks ended October 3, 2015 compared to 43.7% for the thirteen weeks ended September 27, 2014. This 160 basis points as a percentage of net retail sales (bps) increase was primarily driven by a 100 bps expansion in merchandise margin and 60 bps of improvement from reduced distribution costs and improved leverage of fixed occupancy costs.   

Selling, general and administrative. Selling, general and administrative expenses were $37.6 million for the thirteen weeks ended October 3, 2015 as compared to $36.2 million for the thirteen weeks ended September 27, 2014, an increase of $1.4 million, or 3.9%. As a percentage of total revenues, selling, general and administrative expenses increased to 44.0% for the thirteen weeks ended October 3, 2015 as compared to 41.8% for the thirteen weeks ended September 27, 2014, an increase of 220 bps. The 2015 third quarter included $1.0 million in management transition costs and currency loss, compared to $1.6 million in the 2014 third quarter. Adjusting for these items in both periods, selling, general and administrative expenses as a percent of total revenues for the thirteen weeks ended October 3, 2015 was 42.9%, compared to 39.9% for the thirteen weeks ended September 27, 2014. The majority of the dollar increase reflects investments made in support of long term strategies to position the Company to accelerate sales and earnings growth.

Interest expense (income), net. Interest income, net of interest expense, was $56,000 for the thirteen weeks ended October 3, 2015 as compared to $38,000 for the thirteen weeks ended September 27, 2014.

Provision for income taxes. Income tax expense was $0.3 million for the thirteen weeks ended October 3, 2015 as compared to income tax expense of $0.2 million for the thirteen weeks ended September 27, 2014.  The effective tax rate was 22.0% for the thirteen weeks ended October 3, 2015 compared to 11.6% for the thirteen weeks ended September 27, 2014. This $0.1 million increase was primarily attributable to an increase in state tax expense and by increased tax expense in foreign jurisdictions. As there was a valuation allowance recorded on substantially all domestic deferred tax assets in both periods, income tax expense on domestic income was offset by a reversal of a portion of the existing valuation allowance. The change in the effective tax rate was primarily attributable to the impact of recording withholding taxes, tax expense in foreign jurisdictions, adjustments to uncertain tax position reserves, and state tax expense.

Thirty-nine weeks ended October 3, 2015 compared to thirty-nine weeks ended September 27, 2014

Revenues

Net retail sales. Net retail sales were $256.2 million for the thirty-nine weeks ended October 3, 2015 compared to $257.8 million for the thirty-nine weeks ended September 27, 2014, a decrease of $1.5 million, or 0.6%. The components of this decrease are as follows:

We believe the changes in comparable store sales for the thirty-nine weeks ended October 3, 2015 are primarily attributable to the following factors:

Franchise fees and commercial revenue. Revenue from franchise fees was $1.6 million for the thirty-nine weeks ended October 3, 2015 compared to $1.7 million for the thirty-nine weeks ended September 27, 2014 a decrease of $0.1 million, primarily attributable to a decline in the number of franchise stores in operation in 2015. Commercial revenue was $2.2 million for the thirty-nine weeks ended October 3, 2015 compared to $1.4 million for the thirty-nine weeks ended September 27, 2014, an increase of $0.8 million. This increase was primarily attributable to an increase in wholesale activities.

Cost and expenses

Retail gross margin. Retail gross margin increased to $116.0 million for the thirty-nine weeks ended October 3, 2015 from $109.0 million for the thirty-nine weeks ended September 27, 2014, an increase of $7.0 million, or 6.4%. As a percentage of net retail sales, retail gross margin increased to 45.3% for the thirty-nine weeks ended October 3, 2015 from 42.3% for the thirty-nine weeks ended September 27, 2014. This 300 bps increase was primarily driven by a 200 bps expansion in merchandise margin, 50 bps of improvement in distribution costs and 50 bps of improved leverage of fixed occupancy costs.

 Selling, general and administrative. Selling, general and administrative expenses were $110.8 million for the thirty-nine weeks ended October 3, 2015 compared to $108.1 million for the thirty-nine weeks ended September 27, 2014, an increase of $2.8 million, or 2.5%. As a percentage of total revenues, selling, general and administrative expenses increased to 42.6% for the thirty-nine weeks ended October 3, 2015 as compared to 41.4% for the thirty-nine weeks ended September 27, 2014, an increase of 120 bps. The thirty-nine weeks ended October 3, 2015 included $2.4 million in management transition costs and currency loss, compared to $1.9 million in the thirty-nine weeks ended September 27, 2014. Adjusting for these items in both periods, selling, general and administrative expenses as a percent of total revenues for the thirty-nine weeks ended October 3, 2015 was 41.7%, compared to 40.7% for the thirty-nine weeks ended September 27, 2014.

Interest expense (income), net. Interest income, net of interest expense, was $0.1 million and $36,000 for the thirty-nine weeks ended October 3, 2015 and September 27, 2014, respectively.

Provision for income taxes. Income tax expense was $0.7 million for the thirty-nine weeks ended October 3, 2015 as compared to income tax expense of $0.9 million for the thirty-nine weeks ended September 27, 2014.  The effective tax rate was 9.0% for the thirty-nine weeks ended October 3, 2015 compared to 25.3% for the thirty-nine weeks ended September 27, 2014. This $0.2 million decrease was primarily attributable to a decrease in tax expense in foreign jurisdictions. As there was a valuation allowance recorded on substantially all domestic deferred tax assets in both periods, income tax expense on domestic income was offset by a reversal of a portion of the existing valuation allowance.  The change in the effective rate was primarily driven by the change in domestic pre-tax results for the respective periods.

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 and consumer spending patterns; (2) increases or decreases in our comparable store sales; (3) fluctuations in the profitability of our stores; (4) changes in foreign currency exchange rates; (5) the timing and frequency of our marketing initiatives, including national media and other public relations events; (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; and (11) 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; 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.

As a toy retailer, our sales are highest in our fourth quarter, followed by the first quarter. The timing of holidays and school vacations can impact our quarterly results. We cannot ensure 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. The 2014 fiscal fourth quarter had 14 weeks.

Liquidity and Capital Resources

Our cash requirements are primarily for the relocation and remodeling of existing stores in our new design, opening of new stores, information systems and working capital. Over the past several years, we have met these requirements through capital generated from cash flow provided by operations. We have access to additional cash through our revolving line of credit that has been in place since 2000.

Operating Activities. Cash used in operating activities was $2.7 million for the thirty-nine weeks ended October 3, 2015, compared to cash provided by operating activities of $4.4 million for the thirty-nine weeks ended September 27, 2014, a change of $7.1 million. Generally, changes in cash from operating activities are driven by changes in net income and changes in operating assets and liabilities. This increase in cash used by operating activities over the year ago period was primarily due to the timing of inventory receipts and payments partially offset by improved store contribution.

Investing Activities. Cash used in investing activities was $13.6 million for the thirty-nine weeks ended October 3, 2015 as compared to $6.6 million for the thirty-nine weeks ended September 27, 2014, an increase of $7.0 million. Cash used in investing activities during the thirty-nine weeks ended October 3, 2015 primarily related to construction costs for new and remodeled stores, investments in central office information technology systems, the acquisition of trademarks and other intellectual property and the purchases of short-term investments, net of the proceeds from maturities. Cash used in investing activities during the thirty-nine weeks ended September 27, 2014 primarily related to construction costs for new and remodeled stores, investments in central office information technology systems and purchases of short-term investments.

Financing Activities. Financing activities used cash of $11.6 million in the thirty-nine weeks ended October 3, 2015, as purchases of our common stock used cash of $11.1 million and exercises of employee stock options, net of shares used for withholding tax payments used $0.5 million. In the thirty-nine weeks ended September 27, 2014, financing activities used cash of $2.0 million, as purchases of our common stock used cash of $3.2 million partially offset by cash provided from the exercises of employee stock options, net of shares used for withholding tax payments of $1.3 million. No borrowings were made under our line of credit in either the thirty-nine weeks ended October 3, 2015 or September 27, 2014.

Capital Resources. As of October 3, 2015, we had a consolidated cash balance of $37.1 million, over half of which was domiciled outside of the United States. We also have a line of credit, which we can use to finance capital expenditures and working capital needs throughout the year. The bank line provides availability of $35 million. Borrowings under the credit agreement are secured by our assets and a pledge of 65% of our ownership interest in our foreign subsidiaries. The credit agreement expires on December 31, 2016 and contains various restrictions on indebtedness, liens, guarantees, redemptions, mergers, acquisitions or sale of assets, loans, transactions with affiliates and investments. It also prohibits us from declaring dividends without the bank’s prior consent, unless such payment of dividends would not violate any terms of the credit agreement. We are also prohibited from repurchasing shares of our common stock unless such repurchase of shares would not violate any terms of the credit agreement; we may not use the proceeds of the line of credit to repurchase shares. Borrowings bear interest at LIBOR plus 1.8%. Financial covenants include maintaining a minimum tangible net worth, maintaining a minimum fixed charge coverage ratio (as defined in the credit agreement) and not exceeding a maximum funded debt to earnings before interest, depreciation and amortization ratio. As of October 3, 2015: (i) we were in compliance with these covenants; (ii) there were no borrowings under our line of credit; and (iii) there was $35.0 million available for borrowing under the line of credit.

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 typically have a ten-year term and contain provisions for base rent plus percentage rent based on defined sales levels. Many of the leases contain a provision whereby either we or the landlord may terminate the lease after a certain time, typically in the third to fourth year of the lease, if a certain minimum sales volume is not achieved. In addition, some of these leases contain various restrictions relating to change of 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.

Our leases in the U.K. and Ireland typically have terms of 10 to 15 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. Real estate taxes also change according to government time schedules to reflect current market rental rates for the locations we lease. Rents are charged quarterly and paid in advance.

In fiscal 2015, we expect to spend a total of $20 million to $25 million on capital expenditures. Capital spending through the thirty-nine weeks ended October 3, 2015 totaled $12.9 million, on track with our full year plans. Capital spending in fiscal 2015 is primarily to support the remodeling and opening of stores and investment in infrastructure.

We believe that cash generated from operations and borrowings under our credit agreement will be sufficient to fund our working capital and other cash flow requirements for the near future.  

On February 20, 2007, we announced that our board of directors had authorized a $25 million share repurchase program of our outstanding common stock. On March 10, 2008, we announced an expansion of our share repurchase program to $50 million (the “2008 Share Repurchase Program”). Following a series of annual extensions, as of February 25, 2015, under the 2008 Share Repurchase Program, we had repurchased approximately 6,245,000 shares at an average price of $7.40 per share for an aggregate amount of $46.2 million, leaving $3.8 million of availability under the program. On February 25, 2015, we announced the termination of the 2008 Share Repurchase Program and the adoption of a new repurchase program (the “February 2015 Share Repurchase Program”) which authorizes us to repurchase up to $10 million of our common stock until March 31, 2016, subject to further extension by our board of directors. On July 7, 2015, we announced that the board had left the February 2015 Share Repurchase Program in place and adopted a new repurchase program (the “July 2015 Share Repurchase Program”) (together, the “2015 Share Repurchase Programs”) which authorizes us to repurchase up to an additional $10 million of our common stock until March 31, 2016, subject to further extension by the board. Under the 2015 Share Repurchase Programs, we currently intend to purchase up to $20 million of our common stock in the open market (including through 10b5-1 trading plans), through privately negotiated transactions, or through an accelerated repurchase transaction. The primary source of funding has been, and is expected to be, cash on hand. The timing and amount of share repurchases, if any, will depend on price, market conditions, applicable regulatory requirements, and other factors. The 2015 Share Repurchase Programs do not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares repurchased under the 2015 Share Repurchase Programs will be subsequently retired. As of November 10, 2015, we had repurchased approximately 1,171,000 shares at an average price of $16.73 per share for an aggregate amount of $19.6 million, leaving $1.5 million of availability under the 2015 Share Repurchase Programs. 

Off-Balance Sheet Arrangements

None

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 the application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates, including those related to long-lived assets, 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 March 19, 2015, which includes audited consolidated financial statements for our 2014, 2013 and 2012 fiscal years. There have been no material changes to the critical accounting estimates disclosed in the 2014 Form 10-K.

 Recent Accounting Pronouncements

None

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 January 3, 2015 as filed with the SEC on March 19, 2015. 

Item 4. Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and Chief President Bear and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), 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 Chief Executive Officer and Chief President Bear and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of October 3, 2015, the end of the period covered by this Quarterly Report.

It should be noted that our management, including the Chief Executive Officer and Chief President Bear 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 Chief Executive Officer and Chief President Bear and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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. Based on that evaluation, there has been no such change during the period covered by this report.

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 January 3, 2015 as filed with the SEC on March 19, 2015. 

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

ISSUER PURCHASES OF EQUITY SECURITIES

Item 6. Exhibits

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

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: November 12, 2015

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