2. New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard (“ASC 606”) that superseded previous existing revenue recognition guidance and was adopted by the Company using the modified retrospective method as of February 4, 2018, the beginning of the first quarter of its fiscal year ending February 2, 2019. The adoption of the new guidance primarily affected the recognition of minimum guaranteed royalties under the Company’s agreements with its licensees that have historically been recognized as earned in accordance with the underlying license agreements. Under this new standard, such royalties will generally be recognized on a straight-line basis over the term of the license agreement. Accordingly, for license agreements with escalating minimum guaranteed royalties, revenues will generally be higher during the early years of the license agreement than they would have been under the previous guidance. Royalties are typically earned based on the licensees’ retail or wholesale sales of licensed products, or based on the cost of producing the licensed goods. Revenues from license fees, up-front payments and milestone payments, which are received in connection with other rights and services that represent continuing obligations of the Company, are deferred and recognized in accordance with the license agreements. Initial franchise fees are recognized as revenue when a franchised location opens, since the services and conditions related to the franchise fee have generally been performed at that point. Renewal franchise fees are recognized as revenue when the renewal agreements are signed and the fee is paid since there are no material services and conditions related to these franchise fees. The cumulative effect on adoption of ASC 606 totaled $0.3 million, resulting in a charge to accrued revenue and an adjustment to deferred revenue with a corresponding credit to accumulated deficit for all contracts not completed as of the adoption date. In the three months ended May 5, 2018 the Company recognized additional revenue in the amount of $0.2 million as a result of applying ASC 606. The comparative information for the prior period has not been restated.

The Company recognizes contract liabilities as deferred revenue when licensees prepay royalties, or from license fees, up-front payments and milestone payments that have not yet been earned. Deferred revenue is classified as current or noncurrent depending on when it is anticipated to be recognized. Deferred revenue totaled $4.2 million and $5.1 million at May 5, 2018 and February 3, 2018, respectively. Revenue recognized in the three months ended May 5, 2018 that was previously included in deferred revenue was $0.9 million. The Company recognizes contract assets as accrued revenue when minimum guaranteed royalties are recognized that have not yet been earned under the license agreements. The Company typically bills and receives payments from customers on a quarterly basis, for royalties earned or for minimum guaranteed royalties that have historically been recognized as earned in accordance with the underlying license agreements. Accrued revenue is classified as current or noncurrent depending on when the asset is anticipated to amortize. Accrued revenue totaled $0.5 million and $0.4 million at May 5, 2018 and February 4, 2018, respectively. Revenue recognized in the three months ended May 5, 2018 for minimum guaranteed royalties that had not yet been earned was $0.2 million.

The Company’s remaining performance obligation is to maintain the licensed intellectual property. As of May 5, 2018, the Company had a contractual right to receive approximately $65.8 million of aggregate minimum licensing revenue through the balance of the current licenses, excluding any renewals, which is expected to be recognized approximately over the next 20 years.