Basis of Presentation

9 Months Ended

Nov. 02, 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 operating results for the twelve months ended November 2, 2019 resulted in a violation of this minimum Adjusted EBITDA covenant, which is an event of default.  However, the Company’s senior lender has agreed to forbear from enforcing its rights under the senior secured credit facility through February 28, 2020. Revenues for the three months ended November 2, 2019 were 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.  In response, management has enacted certain cash savings measures, but such actions were not adequate to maintain compliance with the Adjusted EBITDA covenant.  The Company has classified its debt as current as financial projections indicate that there is a significant risk of further violations of the minimum Adjusted EBITDA covenant or minimum cash covenant beyond the forbearance period agreed to with the Company’s senior lender.  Future compliance failures would subject the Company to significant risks, including the right of its senior lender to terminate its obligation under the Credit Facility, declare all or any portion of the borrowed amounts then outstanding to be accelerated and due and payable, and/or exercise any other right or remedies it may have under applicable law, including foreclosing on the Company’s and/or its subsidiaries’ assets that serve as collateral for the borrowed amounts.  If any of these rights were to be exercised, the Company’s financial condition and ability to continue operations would be materially jeopardized.  If the Company is unable to meet obligations to lenders and other creditors, the Company may have to significantly curtail or even cease operations.  Because of this uncertainty, there is substantial doubt about the Company’s ability to continue as a going concern.  The Company is in negotiations for new and amended licenses that would increase its working capital and Adjusted EBITDA and is evaluating other potential sources of working capital, including the disposition of certain assets.  Management’s plans also include further negotiations with its lenders and other potential sources of capital, and the Company’s management and board of directors have engaged an advisory firm to advise the Company regarding its business plans, risks and opportunities.  There is no assurance that the Company will be able to execute these plans or continue to operate as a going concern.

Reverse Stock Split

On September 27, 2019, the Company effected a one-for-three reverse stock split (the “Reverse Stock Split”) of its common stock.  The Reverse Stock Split reduced the number of the Company’s outstanding shares of common stock from approximately 16.6 million shares to approximately 5.5 million shares and reduces the number of authorized shares of common stock from 30.0 million shares to 10.0 million shares.  Unless the context otherwise requires, all share and per share amounts in these condensed consolidated financial statements have been revised to reflect the Reverse Stock Split.