Basis of Presentation

9 Months Ended

Oct. 31, 2020

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 1, 2020 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. The Company’s operating results for the twelve months ended November 2, 2019 and twelve months ended February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report prepared by the Company’s senior secured lender during the first quarter of Fiscal 2021 indicated that the Company’s borrowing base is less than the outstanding term loan balance.   Beginning in the first quarter of fiscal 2021, the Company’s business has been materially adversely affected by the effects of the global pandemic of COVID-19 and the related protective public health measures.  The Company’s business depends upon purchases and sales of products bearing the Company’s brands by the Company’s licensees, and the prevalence of shelter in place and similar orders in the regions where these products are sold, together with the closure of many retail stores of the Company’s licensees, have resulted in significant declines in the Company’s royalties, which will likely continue for some period of time.  In response to the decline in revenues, the Company has implemented cost savings measures, such as pay reductions and employee furloughs among other things. 

The Company’s senior lender has agreed to forbear from enforcing its rights under the senior secured credit facility with respect to various defaults through December 31, 2020 or March 31, 2021 if certain milestones are met, and the senior secured credit facility now matures on March 31, 2021 or December 31, 2020 if certain milestones are not met. Beginning with May 1, 2020 and continuing through the term of the forbearance agreement, interest and loan amortization payments are not be paid in cash, other than approximately $85,000 per month beginning on September 1, 2020 and the interest payment due August 1, 2020, but an equivalent amount is added to the principal amount of the term loans to be repaid.  During the forbearance period, the Adjusted EBITDA covenant was reduced, the required minimum cash balance to be maintained by the Company was reduced, and the borrowing base requirement was suspended.  The Company is required during the forbearance period to evaluate strategic alternatives designed to provide liquidity to repay the term loans under the senior secured credit facility.  In exchange for these concessions, the senior lender will receive an additional fee totaling 2% of the outstanding loan balance when the debt is repaid, which together with other exit fees is expected to total approximately $2.5 million.  The Company’s Junior Note holders also agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through January 1, 2021, and payments to the Company’s Junior Notes holders are generally restricted by the forbearance agreement.

Future compliance failures under the senior secured credit facility subjects the Company to significant risks, including the right of its senior lender to terminate its obligations under the senior secured 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, or if the Company is unable to refinance its senior secured credit facility by the accelerated maturity of March 31, 2021, which could be further accelerated to December 31, 2020 if certain milestones are not met, 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.  The Company is evaluating potential sources of working capital and believes that the NOL carryback provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by the U.S. Congress in March 2020 will result in additional liquidity, although the timing of these future cash receipts is uncertain.  NOL carryback claims are expected to result in federal income tax refunds of approximately $9.1 million.  Management’s plans also include the evaluation of strategic alternatives to refinance its debt or otherwise enhance shareholder value.  There is no assurance that the Company will be able to execute these plans.  Because of this uncertainty, there is substantial doubt about the Company’s ability to continue as a going concern.

Reverse Stock Split

On September 2, 2020, the Company effected a one-for-ten 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 5.6 million shares to approximately 0.6 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 including reclassifying an amount equal to the reduction in par value of our common stock to additional paid-in capital.