Basis of Presentation

6 Months Ended

Aug. 03, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation.  Cherokee Inc. changed its name to Apex Global Brands Inc. effective June 27, 2019.  These financial statements include the accounts of Apex Global Brands Inc. and its consolidated subsidiaries (the “Company”) and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and the results of operations for the periods presented.  The condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended February 2, 2019 included in the Company’s Annual Report on Form 10-K.  Interim results are not necessarily indicative of results to be expected for the full year.

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared on the going concern basis of accounting, which assumes the Company will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  Under the Company’s senior secured credit facility, the Company is required to maintain specified levels of Adjusted EBITDA as defined ($9.5 million for the trailing twelve months as of February 1, 2020) and maintain a minimum cash balance of $1.0 million.  The Company’s financial projections currently indicate that the Company will remain in compliance with these covenants for a period of at least one year from the issuance date of these condensed consolidated financial statements.  Actual year-to-date revenues have been lower than the Company’s previous forecasts due to lower than expected royalties reported by the Company’s licensees, which have been negatively impacted by the economic uncertainty surrounding Brexit, global trade wars and increasing tariffs on footwear and apparel, and the weakening of the British pound sterling and euro in relation to the United States dollar.  As a result, management has enacted certain cash savings measures.

Should actual revenues during the upcoming year be lower than management’s current projections by an amount that may potentially result in a violation of the Adjusted EBITDA covenant or the minimum cash balance covenant, or if timing of cash receipts is materially different than management’s expectations, management believes that there are additional cash saving measures that could be implemented during this time period, including reductions in discretionary expenses related to marketing programs, product development and general and administrative expenses  However, if actual future revenues are substantially below current forecasts, such actions may not be adequate to maintain compliance with the Adjusted EBITDA covenant and the minimum cash balance covenant.  Because of this uncertainty, there is substantial doubt about the Company’s ability to continue as a going concern.  In addition to the Company’s management endeavoring to increase its earnings through the cost-saving measures noted above, the Company is in active negotiations for new and amended licenses that would increase its working capital and Adjusted EBITDA.