UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended OctoberApril 3, 20092010

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  x    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  x

As of November 9, 2009,May 7, 2010, there were 20,361,70520,481,079 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

(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 OPERATIONS

(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

1. Basis of Presentation

The condensed consolidated financial statements included herein are unaudited and have been prepared by Build-A-Bear Workshop, Inc. and its subsidiaries (collectively, the Company)“Company”) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet of the Company as of January 3, 20092, 2010 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly the financial position of the Company and the results of the Company’s operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. Because of the seasonal nature of the Company’s operations, results of operations of any single reporting period should not be considered as indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended January 3, 20092, 2010, which were included in the Company’s annual report on Form 10-K filed with the SEC on March 19, 2009.18, 2010.

Certain revenues within the Licensing and Entertainment segment were previously reported net and are now reported gross. Prior year amounts have been conformed to match the current year’s presentation. The impact for the period ended April 4, 2009 was an increase to both licensing revenue and cost of sales of $0.3 million.

2. Prepaid Expenses and Other Assets

Prepaid expenses and other current assets consist of the following (in thousands):

3. Goodwill

Goodwill is accounted for in accordance with Financial Accounting Standards Codification (ASC)Board Accounting Standards Codification(ASC) Section 350-20 and is reported as a component of the Company’s retail segment. The following table summarizes the changes in goodwill for the thirty-ninethirteen weeks ended OctoberApril 3, 20092010 (in thousands):

Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. This testing requires comparison of carrying values to fair values, and when appropriate, the carrying value of impaired assets is reduced to fair value. Goodwill will be tested for impairment no later than January 2, 2010.1, 2011.

3.4. Stock-based Compensation

The Company accounts for stock-based compensation in accordance with ASC Section 718. The Company uses the straight-line expense attribution method for all stock-based compensation awards with graded vesting.

For the thirteen and thirty-nine weeks ended OctoberApril 3, 2010, selling, general and administrative expenses includes $1.2 million ($0.7 million after tax) of stock-based compensation expense. For the thirteen weeks ended April 4, 2009, selling, general and administrative expense includes $1.1 million ($0.5 million after tax) and $3.1 million ($1.7 million after tax), respectively, of stock-based compensation expense. For the thirteen and thirty-nine weeks ended September 27, 2008, selling, general and administrative expenses includes $0.9 million ($0.5 million after tax) and $2.7 million ($1.9 million after tax), respectively, of stock-based compensation expense.

As of OctoberApril 3, 2009,2010, there was $9.0$10.4 million of total unrecognized compensation expense related to nonvested restricted stock and option awards which is expected to be recognized over a weighted-average period of 1.71.8 years.

4.5. Stock Incentive Plans

InOn April 3, 2000, the Company adopted the Build-A-Bear Workshop, Inc. 2000 Stock Option Plan.Plan (the Plan). In 2003, the Company adopted the Build-A-Bear Workshop, Inc. 2002 Stock Incentive Plan, and,Plan; in 2004, the Company adopted the Build-A-Bear Workshop, Inc. 2004 Stock

Incentive Plan, and in 2009, the Company amended and restated the Build-A-Bear Workshop, Inc. 2004 Stock Incentive Plan (collectively, the Plans).

Under the Plans, as amended, from January 3, 2009, up to 3,230,000 shares of common stock were reserved and may be granted to employees and nonemployees of the Company. The Plans allowPlan allows for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (SAR) and restricted stock. Options granted under the PlansPlan expire no later than 10 years from the date of the grant. The exercise price of each incentive stock option shall not be less than 100% of the fair value of the stock subject to the option on the date the option is granted. The exercise price of all options shall be the fair market value on the date of the grant. The vesting provision of individual awardsoptions is at the discretion of the compensation committee of the Boardboard of Directors (the Committee)directors and generally ranges from one to four years.

On March 17, 2009, the Board Each share of Directors adopted,stock awarded pursuant to an option or subject to stockholder approval at the Company’s annual meetingexercised portion of stockholders, certain amendments to the Amended and Restated 2004 Stock Incentive Plan (the Amended Incentive Plan). On May 14, 2009, the stockholders approved the Amended Incentive Plan. The Amended Incentive Plan amendments, among other things: (i) provide thata SAR reduces the number of shares authorized for issuance underavailable by one share. Each share of stock awarded pursuant to any other stock-based awards, including restricted stock grants, reduces the Amended Incentive Plan as of January 3, 2009 would be 3,230,000, subject to certain adjustments; (ii) expressly prohibit the usenumber of shares withheld to satisfy tax withholding obligations for reissuance under the Amended Incentive Plan; (iii) provide a formula for the share reserve ratio of awards under the Amended Incentive Plan, including an increased ratio for certain awards; (iv) expressly prohibit the repricing of awards under the Amended

Incentive Plan without the approval of stockholders; (v) revise a portion of the definition of “change in control” to state that a change in control occurs upon the occurrence of a reorganization, merger or consolidation rather than stockholder approval of such transactions; (vi) expressly state that the purchase price of all options shall be fair market value on the date of grant; (vii) limit the term of a stock appreciation right to 10 years; and (viii) provide that the Committee will administer and interpret the Amended Incentive Plan in a manner consistent with the intent to satisfy the requirements of Section 409A of the Internal Revenue Code to avoid any adverse tax results thereunder to a holder of an award.available by 1.27 shares.

(a) Stock Options

The following table is a summary of the balances and activity for the Plans related to stock options for the thirty-ninethirteen weeks ended OctoberApril 3, 2009:2010:

No options were exercised in the thirty-nine weeks ended October 3, 2009 or September 27, 2008. The Company generally issues new shares to satisfy option exercises.

The expense recorded related to options granted during the thirteen and thirty-nine weeks ended OctoberApril 3, 20092010 was determined using the Black-Scholes option pricing model and the provisions of Staff Accounting Bulletin (SAB) 107 and 110, which allow the use of a simplified method to estimate the expected term of “plain vanilla” options. The assumptions used in the option pricing model for the thirteen weeks ended April 3, 2010 were: (a) dividend yield of 0%; (b) volatility of 65%; (c) risk-free interest rates of 3.0%; and (d) an expected life of 6.25 years.

The expense recorded related to options during the thirteen weeks ended April 4, 2009 was determined using the Black-Scholes option pricing model and the provisions of SAB 107 and 110, which allow the use of a simplified method to estimate the expected term of “plain vanilla” options. The assumptions used in the option pricing model for the thirteen weeks ended April 4, 2009 were: (a) dividend yield of 0%; (b) volatility of 65%; (c) risk-free interest rates ranging from 2.3% to 3.1%2.4%; and (d) an expected life of 6.25 years.

(b) Restricted Stock

The following table is a summary of the balances and activity for the Plans related to restricted stock granted as compensation to employees and directors for the thirty-ninethirteen weeks ended OctoberApril 3, 2009:2010:

The total fair value of shares vested during the thirty-ninethirteen weeks ended OctoberApril 3, 2010 and April 4, 2009 was $1.7 million and September 27, 2008 was $0.9 million, and $1.0 million, respectively.

(c) Associate Stock Purchase Plan

In October 2004, the Company adopted an Associate Stock Purchase Plan (ASPP). Under the ASPP, substantially all full-time employees were given the right to purchase shares of the Company’s common stock, subject to certain limitations, at 85% of the lesser of the fair market value on the purchase date or the beginning of each purchase period, or calendar quarter. The ASPP was terminated, effective December 31, 2008. The employees of the Company purchased 10,892 shares at $6.34 per share through the ASPP during the 2008 third calendar quarter, which ended September 30, 2008. The purchase occurred in the Company’s fiscal 2008 fourth quarter.

5.6. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):

In calculating diluted lossearnings per share for the thirteen and thirty-nine weeks ended OctoberApril 3, 2009,2010, options to purchase 814,2531,123,641 shares of common stock were outstanding as of the end of the period, but were not included in the computation of diluted lossearnings per share due to their anti-dilutive effect. An additional 1,493,243592,492 shares of restricted common stock were outstanding at the end of the period, but excluded from the calculation of diluted lossearnings per share for the thirteen and thirty-nine weeks ended October 3, 2009 due to their anti-dilutive effect.

In calculating diluted lossearnings per share for the thirteen and thirty-nine weeks ended September 27, 2008,April 4, 2009, options to purchase 368,677819,537 shares of common stock were outstanding as of the end of the period, but were not included in the computation of diluted lossearnings per share due to their anti-dilutive effect. An additional 691,1031,031,236 shares of restricted common stock were outstanding at the end of the period, but excluded from the calculation of diluted lossearnings per share for the thirteen and thirty-nine weeks ended September 27, 2008 due to their anti-dilutive effect.

6.7. Comprehensive Loss

Comprehensive loss was $2.7 million and $0.3 million for the thirteen weeks ended April 3, 2010 and April 4, 2009, respectively. The difference between comprehensive income and net income resulted from foreign currency translation adjustments on the balance sheets of subsidiaries whose functional currency is not the US Dollar.

8. Income Taxes

The Company accounts for uncertainty in income taxes in accordance with ASC Section 740-10. As of OctoberApril 3, 20092010 and January 3, 2009, the Company had2, 2010, there were approximately $0.8$0.6 million, and $1.0 million, respectively, of unrecognized tax benefits. During the next twelve months, it is reasonably possible to reduce unrecognized tax benefits by $0.4$0.3 million either because the tax positions are sustained on audit settlements are reached or expiration of the statute of limitations expired.limitations.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of OctoberApril 3, 20092010 and January 3, 2009,2, 2010, there was approximately $0.2$0.1 million of accrued interest related to uncertain tax positions.

7. Comprehensive Loss

Comprehensive loss for the thirteen weeks ended October 3, 2009 and September 27, 2008 was $6.4 million and $7.7 million, respectively, and for the thirty-nine week period ended October 3, 2009 and September 27, 2008 was $6.2 million and $5.4 million, respectively. The difference between comprehensive loss and net loss resulted from foreign currency translation adjustments.

8.9. Segment Information

The Company’s operations are conducted through three operating segments consisting of retail, international franchising and licensing and entertainment. The retail segment includes the operating activities of company-owned stores in the United States, including Puerto Rico, Canada, the United Kingdom, Ireland, France and other retail delivery operations, including the Company’s Webweb store and non-traditional store locations such as baseball ballparks. The international franchising segment includes the licensing activities of the Company’s franchise agreements with store locations in Europe, outside of France, Asia, Australia and Africa. The licensing and entertainment segment has been established to market the naming and branding rights of the Company’s intellectual properties for third party use. The operating segments have discrete sources of revenue, different capital structures and different cost structures. These operating segments represent the basis on which the Company’s chief operating decision maker regularly evaluates the business in assessing performance, determining the allocation of resources and the pursuit of future growth opportunities. Accordingly, the Company has determined that each of its operating segments represent one reportable segment. The reportable segments follow the same accounting policies used for the Company’s consolidated financials statements.

Following is a summary of the financial information for the Company’s reportable segments (in thousands):

		Retail				International Franchising			Licensing & Entertainment			Total
Thirteen weeks ended April 3, 2010
Net sales to external customers		$	99,786			$	683		$	967		$	101,436
Income before income taxes			1,909				339			570			2,818
Capital expenditures, net			3,221				36			—			3,257
Depreciation and amortization			6,765				103			—			6,868
Thirteen weeks ended April 4, 2009
Net sales to external customers		$	96,316			$	597		$	752		$	97,665
Income (loss) before income taxes			(1,692	)			244			342			(1,106	)
Capital expenditures, net			2,089				61			—			2,150
Depreciation and amortization			6,925				114			—			7,039
Total Assets as of:
April 3, 2010		$	261,903			$	3,436		$	3,332		$	268,671
April 4, 2009		$	263,305			$	2,804		$	2,936		$	269,045

The Company’s reportable segments are primarily determined by the types of products and services that they offer. Each reportable segment may operate in many geographic areas. The Company allocates revenues to geographic areas based on the location of the customer or franchisee. The following schedule is a summary of the Company’s sales to external customers and long-lived assets by geographic area (in thousands):

9. Investment in Affiliate

The Company holds a minority interest in Ridemakerz, LLC (Ridemakerz), which is accounted for under the equity method. Ridemakerz is an early-stage company that has developed an interactive retail concept that allows children and families to build and customize their own personalized cars. In 2006, the Company invested $0.6 million, which represented an ownership interest of approximately 10%. The Company invested an additional $2.4 million in 2007 and $2.5 million in 2008. The Company has also entered into a series of agreements whereby the Company has agreed to perform advisory and operational support services for Ridemakerz in exchange for additional equity. For the thirteen and thirty-nine weeks ended October 3, 2009, the Company received $0.2 million and $0.6 million, respectively, in equity in exchange for support services provided. For the thirteen and thirty-nine weeks ended September 27, 2008, the Company received $0.2 million and $0.7 million, respectively, in equity in exchange for support services provided. In 2007, the Company also purchased a call option from a group of other Ridemakerz investors for $150,000 for 1.25 million Ridemakerz common units at an exercise price of $1.25 per unit. The call option was immediately exercisable and expires April 30, 2012. Simultaneously, the Company granted a put option to the same group of investors for 1.25 million common units at an exercise price of $0.50 per unit. The put option became exercisable on April 30, 2008 and expires on April 30, 2012. As of October 3, 2009, the Company’s investment in Ridemakerz was approximately $3.2 million, which represented an ownership interest of approximately 25%. Under current agreements, the Company is the sole member of an equity class that is allocated losses only following the allocation of losses to all other common and preferred equity holders to the extent of their capital contributions. All of the priority equity members’ capital was reduced to zero in the fiscal 2009 second quarter. As a result, for the thirteen and thirty-nine weeks ended October 3, 2009, the Company recorded non-cash pre-tax losses of $4.6 million ($0.12 per diluted share) and $5.1 million ($0.15 per diluted share), respectively, included in “Equity losses from investment in affiliate” in the Consolidated Statements of Operations. No income or loss allocations were recorded in the thirteen or thirty-nine weeks ended September 27, 2008. As Ridemakerz continues to incur losses, the Company will be required to recognize those losses as non-cash charges up to the amount of the Company’s total investment, including receivables, unless additional equity investments are made by other investors in equity classes that are allocated losses ahead of the Company’s equity. Under the current agreements, the Company could own up to approximately 33% of fully diluted equity in Ridemakerz.

As of October 3, 2009 and January 3, 2009, outstanding receivables from Ridemakerz were $1.0 million and $0.4 million, respectively.

10. Closure of Friends 2B Made Concept

In September 2008, the Company announced plans to close its Friends 2B Made concept, a line of make-your-own dolls and related products. The closure plan affected the Company’s nine Friends 2B Made locations, all but one of which were inside or adjacent to a Build-A-Bear Workshop store, separate Friends 2B Made fixtures in approximately 50 Build-A-Bear Workshop stores, and the concept’s Web sitewww.friends2bmade.com. During the thirteen weeks ended April 4, 2009, the Company recorded pre-tax charges of $0.5 million, related to the closures, which consisted of lease termination charges, and are included in “Store closing” expenses in the Consolidated Statements of Operations. As of October 3, 2009, all nine locations were closed and the fixtures had been

removed from all Build-A-Bear Workshop stores. During the thirteen and thirty-nine weeks ended October 3, 2009, the Company recorded pre-tax charges of $0.3 million and $1.0 million, respectively, related to the closures, which consisted of lease termination charges, construction costs and inventory write-offs, and are included in “Store closing” expenses in the Consolidated Statements of Operations. During the third quarter of fiscal 2008, the Company recorded a pre-tax charge of $2.9 million, respectively, related to the closures, which consisted primarily of asset impairment charges. These charges are a component of net loss before income taxes in the retail segment.

11. Subsequent Events

The Company has evaluated events and transactions subsequent to October 3, 2009 through November 12, 2009, the date the financial statements were filed with the SEC as part of Form 10-Q. Other than the credit agreement extension described below, no events require recognition in the consolidated financial statements or disclosures of the Company per the definitions and requirements of ASC Section 855-10.

On October 28, 2009, the Company amended its previous line of credit with a bank that provides borrowing capacity for the first half of the fiscal year of $40 million and a seasonal overline of $50 million. The seasonal overline is in effect from July 1 to December 31 each year. 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, 2011 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. Borrowings bear interest at LIBOR plus 2.05%. Financial covenants include maintaining a minimum tangible net worth, maintaining a minimum fixed charge cover ratio (as defined in the credit agreement) and not exceeding a maximum funded debt to earnings before interest, depreciation and amortization ratio.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. 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 our annual report on Form 10-K for the year ended January 3, 2009, our quarterly reports on Form 10-Q for the quarters ended April 4, 2009 and July 4, 2009,2, 2010, as filed with the SEC, and the following: general economic conditions may continue to deteriorate, which could lead to disproportionately reduced consumer demand for our products, which represent relatively discretionary spending; our consolidated financial results may be significantly affected by changes in foreign currency exchange rates; customer traffic may continue to decrease in the shopping malls where we are located, on which we depend to attract guests to our stores; we may be unable to generate interest in and demand for our interactive retail experience, or to identify and respond to consumer preferences in a timely fashion; our marketing and onlineon-line initiatives may not be effective in generating sufficient levels of brand awareness and guest traffic; we may be unable to generate comparable store sales growth; losses incurred by our affiliate Ridemakerz may adversely affect our financial condition and profitability; the global economic crisis could have a material adverse effect on our liquidity and capital resources; we may be unable to open new stores or may be unable to effectively manage our growth; we may be unable to effectively manage our international franchises or laws relating to those franchises may change; we may be unable to renew or replace our store leases, or enter into leases for new stores on favorable terms or in favorable locations, or may violate the terms of our current leases; we may be unable to effectively manage the abilityoperations and growth of our principal vendors to deliver merchandisecompany-owned stores; we may be disrupted;unable to effectively manage our international franchises or laws relating to those franchises may change; the availability and costs of our products could be adversely affected by risks associated with international manufacturing and trade;trade, including foreign currency fluctuation; we are susceptible to disruption in our inventory flow due to our reliance on a few vendors; high petroleum products prices could increase our inventory transportation costs and adversely affect our profitability; we may be unable to operate our European company-owned stores profitably; fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline; we may be unable to repurchase shares at all or at the times or in the amounts we currently anticipate or the results of the share repurchase program may not be as beneficial as we currently anticipate; fluctuationswe may improperly obtain or be unable to protect information from our guests in our quarterly resultsviolation of operations could cause the price of our common stock to substantially decline;privacy or security laws or expectations; we may suffer negative publicity or be sued due to violations of labor laws or unethical practices by manufacturers of our merchandise; we may improperly obtainsuffer negative publicity or be unable to protect information fromnegative sales if the non-proprietary toy products we sell in our guests in violation of privacystores do not meet our quality or security laws orsales expectations; our products could become subject to recalls or product liability claims that could adversely impact our financial performance and harm our reputation among consumers; we may lose key personnel, be unable to hire qualified additional personnel, or experience turnover of our management team; we may be unable to realize the anticipated benefits fromoperate our company-owned distribution center efficiently or our third-party distribution center providers may perform poorly; we may be unable to realize some of the expected benefits of the acquisition of Amsbra and Bear Factory, and the inclusion of France as a company-owned country; our market share could be adversely affected by a significant, or increased, number of competitors; we may fail to renew, register or otherwise protect our trademarks or other intellectual property; and we may have disputes with, or be sued by, third parties for infringement or misappropriation of their proprietary rights.rights; poor global economic conditions could have a material adverse effect on our liquidity and capital resources; and we may be unable to recover amounts due to us from our affiliate, Ridemakerz LLC. These risks, uncertainties and other factors may adversely affect our business, growth, financial condition or profitability, or subject us to potential liability, and cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are the leading, and only international, company providing a “make your own stuffed animal” interactive 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. Our concept, which we developed primarily for mall-based retailing, capitalizes on what we believe is the relatively untapped demand for experience-based shopping as well as the widespread appeal of stuffed animals. The Build-A-Bear Workshop experience appeals to a broad range of age groups and demographics, including children, teens, their parents and grandparents.

As of OctoberApril 3, 2009,2010, we operated 291 stores in the United States, Canada, and Puerto Rico, 54 stores in the United Kingdom, Ireland and France, and had 6163 franchised stores operating internationally under the Build-A-Bear Workshop brand. In addition to our stores, weWe also market our products and build our brand through our multiple websites,website, which simulates our interactive shopping experience, as well as non-traditional store locations in fivefour Major League Baseball^® ballparks,parks, one location in a zoo and one location in a science center. Seasonal locations, such as ballparks and zoos, are excluded from our store count.

On October 28, 2009, we extended our line of credit agreement with U.S. Bank, National Association. The two-year extension expires December 31, 2011 and provides $40 million of available credit for the first half of each calendar year and a seasonal overline of $50 million. The seasonal overline is in effect from July 1 to December 31 each year. Borrowings under the credit agreement are secured by our assets and a pledge of 65% of our ownership interest in our foreign subsidiaries. Borrowings bear interest at LIBOR plus 2.05%.

We hold a minority interest in Ridemakerz, LLC (Ridemakerz). Ridemakerz is an early-stage company that has developed an interactive retail concept that allows children and families to build and customize their own personalized cars. We made cash investments in 2006, 2007 and 2008. We also provide advisory and operational support services for Ridemakerz in exchange for additional equity. As of October 3, 2009, our investment in Ridemakerz was approximately $3.2 million; outstanding receivables from Ridemakerz were $1.0 million. Under current agreements, we are the sole member of an equity class that is allocated losses only following the allocation of losses to all other common and preferred equity holders to the extent of their capital contributions. All of the priority equity members’ capital was reduced to zero in the fiscal 2009 second quarter at which time we began to record non-cash pre-tax losses which reduce our investment balance. Ridemakerz incurred substantial losses during the fiscal 2009 third quarter as a result of major restructuring of its operations that included store closings. For the thirteen and thirty-nine weeks ended October 3, 2009, we recorded non-cash pre-tax losses of $4.6 million ($0.12 per diluted share) and $5.1 million ($0.15 per diluted share), respectively. As Ridemakerz continues to incur losses, we will be required to recognize those losses as non-cash charges up to the amount of our total investment, including receivables, unless additional equity investments are made by other investors.

On April 2, 2006, the Companywe acquired all of the outstanding shares of The Bear Factory Limited, (Bear Factory), a stuffed animal retailer in the United Kingdom, and Amsbra Limited, (Amsbra), the Company’sour former United Kingdom franchisee (collectively, the U.K. Acquisition).franchisee. The results of the U.K. Acquisitionacquisitions’ operations have been included in the Company’s consolidated financial statements since that date. In conjunction with those transactions, we obtained 40 retail locationsWe are currently operating 36 of the acquired stores. Since 2006, our European operations have grown to 54 stores, including three in France. We have adopted internal best practices in the United Kingdomareas of merchandising, marketing, purchasing and Ireland. In 2007,store operations, across the Company expanded its Company-ownedacquired store base to France, which was previously under a franchise agreementthat resulted in improved sales and had one store within a department store in operation that was subsequently closed. The Company currently operates three company-owned stores in France.earnings from the acquisition.

We operate in three reportable segments (retail, international franchising, and licensing and entertainment) that share the same infrastructure, including management, systems, merchandising and marketing, and generate revenues as follows:

Selected financial data attributable to each segment for the thirteen and thirty-nine weeks ended OctoberApril 3, 20092010 and September 27, 2008April 4, 2009 are set forth in the notes to our condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Store contribution, for our consolidated operations, was 10.1%16.8% for the thirty-ninethirteen weeks ended OctoberApril 3, 2010 and 13.6% for the thirteen weeks ended April 4, 2009 and 15.8%consolidated net income as a percentage of total revenues was 1.7% for the thirty-ninethirteen weeks ended September 27, 2008April 3, 2010 and consolidated net loss as a percentage of total revenues was 4.3%0.8% for the thirty-ninethirteen weeks ended October 3, 2009 and 0.1% for the thirty-nine weeks ended September 27, 2008.April 4, 2009. See “Non-GAAP“— Non-GAAP Financial Measures” for a definition of store contribution and a reconciliation of store contribution to net income or loss. The decreaseincrease in our store contribution over the prior year was primarily due to the declineincrease in net retailcomparable store sales and resulting declinethe corresponding increase in gross margins as we were able to leverage our fixed occupancy costs in our North American operations. Additional improvements in gross margin as we experienced a lack of sales leverage on fixed store occupancy costs. We are protecting our store contribution through aggressive cost reduction plans. Cost reduction initiatives are now expected to resultwere driven by increased merchandise margin resulting from the change in approximately $20 million in annualized pre-tax savings in 2009, up from a previous estimate of $18 million. Cost reduction initiatives include spending reductions in marketing and advertising, transportation, central office payroll and outside services.product mix.

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 webstore and seasonal and event-based locations. Stores are considered comparable beginning in their thirteenth full month of operation. Comparable store sales percentage changes for 2009 are based on net retail sales as compared to the thirteen and thirty-nine week periods ended October 4, 2008. The percentage change in comparable store sales for the periods presented below is as follows:

We believe the declineincrease in comparable store sales wasfor the period presented is primarily attributable primarily to the following factors:

The Company is addressing the declineworking to continue this positive trend in comparable store sales with the following key initiatives:

Expansion and Growth Potential

Retail Stores:Stores

The table below sets forth the number of Build-A-Bear Workshop Company-ownedcompany-owned stores in the United States, Canada, Puerto Rico (collectively, North America), the United Kingdom, Ireland, and France (collectively, Europe) for the periods presented:

During fiscal 2009,2010, we openedanticipate opening one Build-A-Bear Workshop store in North America and no newtwo stores in Europe. There is no additional planned store activity in the 2009 fourth quarter.United Kingdom. We believe there is a market potential for at least 350 Build-A-Bear Workshop stores in North America,the United States and Canada and approximately 70 to 75 stores in the United Kingdom and Ireland.

In the fiscal 2008 third quarter, we announced plans to close the Friends 2B Made concept, our proprietary line of make-your-own dolls and related products. All remaining closures were completed duringin the fiscal 2009 third quarter. Other thanquarter, the one stand-alone store, theseclosure was completed. One Friends 2B Made storeslocation was considered a store; the other eight locations were not included in our store count, but rather were considered expansions of existing Build-A-Bear Workshop stores. Accordingly, the closures of the eight expansions are not included in the number of store closings noted above.

Non-Traditional Store Locations:Locations

In fiscal 2004, we began offering merchandise in seasonal, event-based locations such as Major League Baseball^® ballparks. We expect to expand our future presence at select seasonal, event-based locations contingent on their availability.availability and the financial terms associated with the venue. As of OctoberApril 3, 2009,2010, we had a total of fivefour ballpark locations, one store within a zoo and one store within a science center. Seasonal locations, such as ballparks and zoos are excluded from our store count.

International Franchise Revenue:Revenue

Our first franchised location opened in November 2003. The number of international, franchised stores for the periods presented below can be summarized as follows:

As of OctoberApril 3, 2009,2010, we had master franchise agreements, which typically grant franchise rights for a particular country or countries, covering 2117 countries. WeIn the ordinary course of business, we anticipate signing additional master franchise agreements in the future. Due to the current global economic conditions, wefuture and terminating other such agreements. We expect our current and future franchisees to open approximately two to three stores in fiscal 2009,2010, net of closures. We believe there is a market potential for approximately 300 franchised stores outside of the United States, Canada, Puerto Rico, the United Kingdom, Ireland and France.

Results of Operations

The following table sets forth, for the periods indicated, selected statement of income data expressed as a percentage of total revenues, except where otherwise indicated. Percentages will not total due to the cost of merchandise sold being expressed as a percentage of net retail sales and immaterial rounding:

BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Thirteen weeks ended OctoberApril 3, 20092010 compared to thirteen weeks ended September 27, 2008April 4, 2009

Total revenues.Net retail sales decreasedincreased to $89.7$99.8 million for the thirteen weeks ended OctoberApril 3, 20092010 from $105.8$96.3 million for the thirteen weeks ended September 27, 2008, a decreaseApril 4, 2009, an increase of $16.1$3.5 million, or 15.2%3.6%. This declineincrease was primarily attributable to a $12.4$1.9 million declineincrease in comparable store sales, a $2.9$1.7 million negativepositive impact of foreign currency translation and a $1.9 million impact of the shift in the weeks included in the fiscal 2009 third quarter as compared to the fiscal 2008 third quarter. These declines were partially offset by a $1.8$0.6 million increase in sales from new stores. Othernon-store locations. These increases were partially offset by decreases of $0.8 million which included changes in net retail sales totaled $0.7 milliondeferred revenue adjustment and included decreased sales from non-comparable non-store locations, partially offset by changes in deferred revenue.store locations.

We believe the declineincrease in comparable store sales wasfor the periods presented is primarily attributable primarily to the following factors:

Revenue from franchise fees decreasedincreased to $0.9$0.7 million for the thirteen weeks ended OctoberApril 3, 20092010 from $0.6 million for the thirteen weeks ended April 4, 2009. This increase was primarily due to having three more locations in the 2010 first quarter as compared to the same period in 2009. Revenue from licensing increased to $1.0 million for the thirteen weeks ended September 27, 2008, a decrease of $0.1 million. This decrease was primarily due to the decline in franchisee store sales reflecting the global economic slowdown. Licensing revenue increased to $1.1April 3, 2010 from $0.8 million for the thirteen weeks ended October 3,April 4, 2009, from $0.5 million for the thirteen weeks ended September 27, 2008, an increase of $0.6$0.2 million. This increase was primarily related to increased revenues through our partnership with Landry’s Restaurant’s, Inc.the launch of new Wii and Nintendo DS games in the timing of licensing activities.2010 first quarter.

Gross margin. TotalGrossgross margin decreasedincreased to $32.7 million for the thirteen weeks ended October 3, 2009 from $42.3 million for the thirteen weeks ended September 27, 2008, a decreaseApril 3, 2010 from $36.3 million for the thirteen weeks ended April 4, 2009, an increase of $9.6$6.0 million, or 22.7%16.6%. Retail gross margin increased to $41.0 million for the thirteen weeks ended April 3, 2010 from $35.3 million for the thirteen weeks ended April 4, 2009, an increase of $5.7 million, or 16.1%. As a percentage of net retail sales, retail gross margin decreasedincreased to 36.5%41.1% for the thirteen weeks ended OctoberApril 3, 20092010 from 40.0%36.6% for the thirteen weeks ended September 27, 2008, a decreaseApril 4, 2009, an increase of 350450 basis points as a percentage of net retail sales (bps). This decrease resultedOur gross margin expansion was primarily from reduced salesdriven by a 200 bps increase in merchandise margin and leverage on storein buying and occupancy costs in North America partially offset by improved sales leverage on store occupancy costs in Europe. Additionally, promotional initiatives in the quarter resulted in a product mix shift and a slight decline in North American merchandise margin.of 210 bps.

Selling, general and administrative.Selling, general and administrative expenses were $39.3$39.5 million for the thirteen weeks ended OctoberApril 3, 20092010 as compared to $43.5$36.9 million for the thirteen weeks ended September 27, 2008, a decreaseApril 4, 2009, an increase of $4.2$2.6 million, or 9.7%7.1%. As a percentage of total revenues, selling, general and administrative expenses increased to 42.8%39.0% for the thirteen weeks ended OctoberApril 3, 20092010 as compared to 40.6%37.8% for the thirteen weeks ended September 27, 2008,April 4, 2009, an increase of 220120 bps. The dollar decrease was primarily due to cost reduction efforts put into place to align our cost structure withincrease and the downturn we are experiencing in consumer spending even though we had four more stores in operation at October 3, 2009 as compared to September 27, 2008. The increase in selling, general and administrative expenses as a percent of revenue waswere primarily due to deleveraging of fixed components of overhead costs, specifically,increases in supplies to support store themes and central office payroll,increases in salaries and depreciation.incentive compensation.

Store preopening.closing. Store preopeningclosing expense was $0.1 for the thirteen weeks ended October 3, 2009 as compared to $0.9$0.5 million for the thirteen weeks ended September 27, 2008. The decrease in store preopening for the period was the result of fewer store openings; we have no planned store openings during the fiscal 2009 fourth quarter as compared to five stores opened during the same period in fiscal 2008. Preopening expenses include expenses for stores that opened in the current period as well as expenses incurred for stores that will open in future periods.

Store closing.Store closing expense was $0.3 million for the thirteen weeks ended October 3,April 4, 2009 and consisted primarily of inventory write-offs and construction costs incurred to reformat locations for return to the landlord related to the closure of the Friends 2B Made concept. Store closing expense was $2.9 million for the thirteen weeks ended September 27, 2008 and consisted primarily of asset impairmentlease termination charges related to the closure of the Friends 2B Made concept.

Equity losses from investment in affiliate.Equity losses from investment in affiliate was $4.6 million for the thirteen weeks ended October 3, 2009 and is the result of the allocation of losses related to our investment in Ridemakerz. Ridemakerz is an early-stage company still in its start-up phase. Ridemakerz incurred substantial losses during the thirteen weeks ended October 3, 2009, as a result of major restructuring of its operations that included store closings. As Ridemakerz continues to incur losses, we will be required to recognize those losses as non-cash charges up to the amount of our total investment, including receivables, unless additional equity investments are made by other investors in equity classes that are allocated losses ahead of our equity.

Interest expense (income), net.Interest income, net of interest expense, was $44,000$32,000 and $24,000 for the thirteen weeks ended OctoberApril 3, 2010 and April 4, 2009, as compared to $0.1respectively.

Provision for income taxes. The provision for income taxes was $1.1 million for the thirteen weeks ended September 27, 2008. This decrease was due lower interest rates in the fiscal 2009 third quarterApril 3, 2010 as compared to the fiscal 2008 third quarter.

Provision for income taxes.The income tax benefit was $4.6of $0.3 million for the thirteen weeks ended October 3, 2009 as compared to $1.4 millionApril 4, 2009. The effective tax rate was 40.4% for the thirteen weeks ended September 27, 2008. The effective tax rate was 49.4%April 3, 2010 compared to 25.4% for the thirteen weeks ended October 3, 2009 compared to 40.2% for the thirteen weeks ended September 27, 2008. We expectApril 4, 2009. The increase in the effective tax rate for full year 2009 to be approximately 46% compared to 36.8% in fiscal year 2008. This higher annual rate compared to 2008 iswas primarily attributable to the impact of permanent items and results in foreign operations measured against US operations. Also, beginning in 2009 with the adoption of ASC 805, the release of pre-acquisition valuation allowances are no longer reflected as an adjustment to goodwill, but recognized through income tax expense. Asrecording a result of the adoption, the release of the pre-acquisition valuation allowance on United Kingdom operations was reflectedin one foreign tax jurisdiction in a profitable quarter in 2010 as a reduction to income tax expense.

Thirty-nine weeks ended October 3, 2009 compared to thirty-nine weeks ended September 27, 2008

Total revenues.Net retail sales decreased to $267.4 million for the thirty-nine weeks ended October 3, 2009 from $321.1 million for the thirty-nine weeks ended September 27, 2008, a decrease of $53.8 million, or 16.7%. This decline was primarily attributable to a $43.1 million declinelosses in comparable store sales, a $12.5 million negative impact of foreign currency translation and a $7.5 million impact of the shift in the weeks included in the first three quarters of fiscal 2009 as compared to the same period in fiscal 2008. These declines were partially offset by a $10.5 million increase in sales from new stores. Other changes in net retail sales totaled $1.2 million and included decreased sales from non-comparable, non-store locations, partially offset by deferred revenue adjustment.

We believe the decline in comparable store sales was attributable primarily to the following factors:

Revenue from franchise fees decreased to $2.2 million for the thirty-nine weeks ended October 3, 2009 from $3.1 million for the thirty-nine weeks ended September 27, 2008, a decrease of $0.9 million. This decrease was primarily due to the decline in franchisee store sales reflecting the global economic slowdown. Licensing revenue increased to $2.0 million for the thirty-nine weeks ended October 3, 2009 from $1.6 million for the thirty-nine weeks ended September 27, 2008, an increase of $0.4 million. This increase was primarily related to increased revenues through our partnership with Landry’s Restaurant’s Inc. and the timing of licensing activities.

Gross margin.Gross margin decreased to $94.7 million for the thirty-nine weeks ended October 3, 2009 from $129.5 million for the thirty-nine weeks ended September 27, 2008, a decrease of $34.8 million, or 26.9%. As a percentage of net retail sales, gross margin decreased to 35.4% for the thirty-nine weeks ended October 3, 2009 from 40.3% for the thirty-nine weeks ended September 27, 2008, a decrease of 490 bps. This decrease resulted primarily from reduced sales leverage on store occupancy costs in North America partially offset by improved sales leverage on store occupancy costs in Europe. Additionally, we experienced a decline in merchandise margin driven by a shift in North American product mix and the impact of currency on our European operations.

Selling, general and administrative.Selling, general and administrative expenses were $113.7 million for the thirty-nine weeks ended October 3, 2009 as compared to $130.5 million for the thirty-nine weeks ended September 27, 2008, a decrease of $16.8 million, or 12.9%. As a percentage of total revenues, selling, general and administrative expenses increased to 41.9% for the thirty-nine weeks ended October 3, 2009 as compared to 40.1% for the thirty-nine weeks ended September 27, 2008, an increase of 180 bps. The dollar decrease was primarily due to cost reduction efforts put into place to align our cost structure with the downturn we are experiencing in consumer spending even though we had four more stores in operation at October 3, 2009 as compared to September 27, 2008. The increase in selling, general and administrative expenses as a percent of revenue was primarily due to deleveraging of fixed components of overhead costs, specifically, store and central office payroll, and depreciation.

Store preopening.Store preopening expense was $0.1 million for the thirty-nine weeks ended October 3, 2009 as compared to $2.0 million for the thirty-nine weeks ended September 27, 2008. We opened one store and relocated one store during fiscal 2009 as compared to 25 stores opened during fiscal 2008. Preopening expenses include expenses for stores that opened in the current period as well as expenses incurred for stores that will open in future periods.

Store closing.Store closing expense was $1.0 million for the thirty-nine weeks ended October 3, 2009 and consisted primarily of lease termination charges, inventory write-offs and construction costs incurred to reformat locations for return to the landlord related to the closure of the Friends 2B Made concept. Store closing expense was $2.9 million for the thirty-nine weeks ended September 27, 2008 and consisted primarily of asset impairment charges related to the closure of the Friends 2B Made concept.

Equity losses from investment in affiliate.Equity losses from investment in affiliate was $5.1 million for the thirty-nine weeks ended October 3, 2009 and is the result of the allocation of losses related to our investment in Ridemakerz. Ridemakerz is an early-stage company still in its start-up phase. Ridemakerz incurred substantial losses during the thirteen weeks ended October 3, 2009, as a result of major restructuring of its operations that included store closings. As Ridemakerz continues to incur losses, we will be required to recognize those losses as non-cash charges up to the amount of our total investment, including receivables, unless additional equity investments are made by other investors in equity classes that are allocated losses ahead of our equity.

Interest expense (income), net.Interest income, net of interest expense, was $0.1 million for the thirty-nine weeks ended October 3, 2009 as compared to $0.8 million for the thirty-nine weeks ended September 27, 2008. This decrease was due to lower interest rates in fiscal 2009 period as compared to fiscal 2008 period.

Provision for income taxes.The income tax benefit was $9.4 million for the thirty-nine-six weeks ended October 3, 2009 as compared to $0.2 million for the thirty-nine weeks ended September 27, 2008. The effective tax rate was 44.9% for the thirty-nine weeks ended October 3, 2009 compared to 27.8% for the thirty-nine weeks ended September 27, 2008. We expect the effective tax rate for full year 2009 to be approximately 46% compared to 36.8% in fiscal year 2008. This higher annual rate compared to 2008 is primarily attributable to the impact of permanent items and results in foreign operations measured against U.S. operations. Also, beginning in 2009 with the adoption of ASC 805, the release of pre-acquisition valuation allowances are no longer reflected as an adjustment to goodwill, but recognized through income tax expense. As a result of the adoption, the release of the pre-acquisition valuation allowance on United Kingdom operations was reflected as a reduction to income tax expense.2009.

Non-GAAP Financial Measures

We use the term “store contribution” in this quarterly report on Form 10-Q. Store contribution consists of income before income tax expense, interest, store depreciation amortization and impairment,amortization, store preopening expense store closing expense and equity losses from investment in affiliate and general and administrative expense, excluding franchise fees, income from licensing activities and contribution from our webstore and seasonal and event-based locations. This term, as we define it, may not be comparable to similarly titled measures used by other companies and is not a measure of performance presented in accordance with U.S. GAAP.generally accepted accounting principles (GAAP).

We use store contribution as a measure of our stores’ operating performance. Store contribution should not be considered a supplement to, and not a substitute for, net income, net income per store, cash flows provided by operating activities, cash flows provided by operating activities per store, or other income or cash flow data prepared in accordance with GAAP. We believe store contribution is useful to investors in evaluating our operating performance because it, along with the number of stores in operation, directly impacts our profitability.

The following table sets forth a reconciliation of store contribution to net income for our company-owned stores located in the United States, Canada and Puerto Rico (North America), stores located the United Kingdom, Ireland and France (Europe) and for our consolidated store base (Dollars in(in thousands):

(5)(4)

Franchising and licensing contribution includes franchising and licensing revenues and all expenses attributable to the international franchising and licensing and entertainment segments other than depreciation, amortization and interest expense/income. Depreciation and amortization related to franchising and licensing is included in the general and administrative expense caption. Interest expense/income related to franchising and licensing is included in the interest expense (income) caption.

(6)(5)

Non-store activities include our webstores, and seasonal and event-based locations as well as intercompany transfer pricing charges.

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: (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 appearances and other public relations events; (6) the timing of our new 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 new store openings may result in fluctuations in quarterly results as a result of the revenues and expenses associated with each new store location. We typically incur most preopening costs for a new store in the three months immediately preceding the store’s opening. We expect our growth, operating results and profitability to depend in some degree on our ability to increase our number of stores.

Historically, for North American stores open more than twelve months, seasonality has not been a significant factor in our results of operations, although we cannot assure you that this will continue to be the case. European-based store sales have historically been weighted more heavily in the fourth quarter as compared to North American stores. 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 2008 fiscal fourth quarter had 14 weeks.

Liquidity and Capital Resources

Our cash requirements are primarily for the opening of new stores, information systems including Web site enhancements and maintenance and working capital. Historically,Over the past several years, we have met these requirements through capital generated from cash flow provided by operations, capital generated from the sale and issuance of our securitiesoperations. We have access to private investors andadditional cash through our initial public offering, and our revolving line of credit.credit that has been in place since 2000.

Operating Activities.Cash used in operating activities was $10.9$1.0 million for the thirty-ninethirteen weeks ended OctoberApril 3, 20092010 as compared with cash used in operating activities of $1.8$10.9 million for the thirty-ninethirteen weeks ended September 27, 2008,April 4, 2009, or an increasea decrease of $9.1$9.9 million. Generally, changes inThis decrease of cash from operating activities are driven by changes in net income or loss and changes in operating assets and liabilities. In 2009, the use of cashused in operating activities was driven primarily byover the increase in the net loss for the first nine months of 2009 as compared to the sameyear ago period in fiscal 2008, which was primarily due to a decline in salesthe timing of payments for inventory purchases and the net income of $1.7 million in the first nine months of fiscal 2009. In the 2009 period, the change in operating assets and liabilities was driven by decreases in accounts payable and accrued expenses and offsetting decreases in inventory, primarily attributable to overall cost reductionsthirteen weeks ended April 3, 2010 as compared to net loss of $0.8 million in the year ago period, and an increase in prepaid expenses, specifically income taxes. In the 2008 period, the change in operating assets and liabilities was driven by decreases in accounts payable and offsetting decreases in inventory, primarily attributable to a lower volume of inventory purchases and more consistent flow of inventory purchases as compared to the year ago period.thirteen weeks ended April 4, 2009.

Investing Activities.Activities. Cash used in investing activities was $7.2$3.3 million for the thirty-ninethirteen weeks ended OctoberApril 3, 20092010 as compared to $23.6$2.3 million for the thirty-ninethirteen weeks ended September 27, 2008.April 4, 2009. Cash used in investing activities during the thirty-ninethirteen weeks ended OctoberApril 3, 2010 primarily relates to upgrades and purchases of central office information technology systems and equipment. Cash used in investing activities during the thirteen weeks ended April 4, 2009 primarily relates to investments in central office information technology systemsbuildabearville.com and the acquisition of trademarks and other intellectual property. Cash used in investing activities during the thirty-nine weeks ended September 27, 2008 primarily relates to new store construction costs and additional investment in Ridemakerz.

Financing Activities.Activities. Cash flows used in financing activities of $1.4 million for the thirteen weeks ended April 3, 2010 consisted of cash spent for the repurchase of the Company’s common stock. We had no cash flows from financing activities in the thirty-ninethirteen weeks ended October 3,April 4, 2009. Cash used in financing activities was $13.4 million in the thirty-nine weeks ended September 27, 2008 which consisted primarily of cash used for repurchases of the Company’s common stock. No borrowings were made under our line of credit in either the thirty-ninethirteen weeks ended OctoberApril 3, 20092010 or September 27, 2008.the thirteen weeks ended April 4, 2009.

Capital Resources.As of OctoberApril 3, 2009,2010, we had a consolidated cash balance of $27.0$53.2 million held in both domestic and foreign financial institutions.approximately 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 credit agreement is with U.S. Bank, National Association and was amended effective October 28, 2009. The bank line continues to provide availability of $40 million for the first half of the fiscal year and a seasonal overline of $50 million. The seasonal overline is in effect from July 1 to December 31 each year. 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, 2011 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. Borrowings bear interest at LIBOR plus 2.05%. Financial covenants include maintaining a minimum tangible net worth, maintaining a minimum fixed charge covercoverage ratio (as defined in the credit agreement) and not exceeding a maximum funded debt to earnings before interest, depreciation and amortization ratio. As of OctoberApril 3, 2009:2010: (i) we were in compliance with these covenants,covenants; (ii) there were no borrowings under our line of credit,credit; (iii) there was a standby letter of credit of approximately $1.1 million outstanding under the credit agreement and (iv) there was approximately $48.9$38.9 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 10-1510 to 15 years and generally contain a provision whereby every fifth year the rental rate can be adjusted upwards to reflect the current market rates. The leases typically provide the lessee with the first right for renewal at the end of the lease. We may also be required to make deposits and rent guarantees to secure new leases as we expand. 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.

Our French leases each have terms of 10 years. French leases for premier retail properties frequently have entry fees and/or key money payments required to be made in conjunction with signature of the leases. Such entry fees or key money payments may be recovered, in whole or in part, upon disposal of the leases. The leases typically provide the lessee with the first right for renewal at the end of the lease. Rent deposits consisting of three months rent are also required to be paid on execution of the leases. Rents are negotiated on a fixed basis, but are reviewed annually in relation to an inflation index and therefore also have a variable rent component. Rents are charged quarterly and paid in advance.

In fiscal 2009,2010, we expect to spend approximately $8a total of $12 to $15 million on capital expenditures. Capital spending through the thirty-ninethirteen weeks ended OctoberApril 3, 20092010 totaled $6.7$3.3 million, on track with our full year plans. Capital spending in fiscal 20092010 is primarily for the continued installation and upgrades of central office information technology systems, continued investment in trademarks and intangible assets, the opening of onethree new store,stores and the relocation of one store and the cost to reformat certain Friends 2B Made locations to Build-A-Bear Workshop space. In fiscal 2008, the average investment per new store in North America, which includes leasehold improvements, fixtures, equipment and inventory, was approximately $0.4 million.store.

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 at least the next 12 months.near future. Our credit agreement expires on December 31, 2011.

On February 20, 2007, we announced a $25 million share repurchase program of our outstanding common stock over the following twelve months. The program was authorized by our board of directors. On March 10, 2008, we announced an expandedexpansion of our share repurchase program to $50 million for an additional twelve months. On March 3, 2009, we announced a twelve month extension of our share repurchase program. On March 3, 2009,2010, we announced an additional twelve month extension of thisthat our share repurchase program.program had been extended to March 31, 2011. We currently have the abilityintend to purchase up to an aggregate of $50 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 for the program 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 program authorizes the Company to repurchase shares over the next 12 months, does 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 program will be subsequently retired. We did not repurchase any shares in the thirteen or thirty-nine weeks ended October 3, 2009.

As of November 9, 2009,May 7, 2010, approximately 1.92.1 million shares at an average price of $9.79 per share have been repurchased under this program for an aggregate amount of $19.0 million at an average price of $10.21 per share.$20.7 million.

Off-Balance Sheet Arrangements

The Company holdsWe hold a minority interest in Ridemakerz, which is accounted for under the equity method. The CompanyWe purchased a call option from a group of other Ridemakerz investors for $150,000 for 1.25 million Ridemakerz common units at an exercise price of $1.25 per unit. The call option was immediately exercisable and expires April 30, 2012. Simultaneously, the Companywe granted a put option to the same group of investors for 1.25 million common units at an exercise price of $0.50 per unit. The put option becamewas exercisable on April 30, 2008 and expires on April 30, 2012. As of OctoberApril 3, 2009,2010, the book value of our investment in Ridemakerz was approximately $3.2 million, which representedhad been reduced to zero. We still retained an ownership interest of approximately 25%. Under the current agreements, the Companywe could own up to approximately 33% of fully diluted equity in Ridemakerz. See Note 9 – Investment

Inflation

We do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented. We cannot provide assurance, however, that our business will not be affected by inflation in Affiliate to the Condensed Consolidated Financial Statements for additional information.future.

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 application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates, including those related to inventory, long-lived assets, goodwill and revenue recognition, 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 SECSecurities and Exchange Commission on March 19, 2009,18, 2010, which includes audited consolidated financial statements for our 2009, 2008 2007 and 20062007 fiscal years. There have been no material changes to the critical accounting policies and estimates disclosed in the 20082009 Form 10-K.

Recent Accounting Pronouncements

There are no new accounting pronouncements for which adoption is expected to have a material effect on the Company’s financial statements in future accounting periods.