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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-22963
BIG DOG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1868665
(State or jurisdiction of (IRS employer
incorporation or organization) identification no.)
121 GRAY AVENUE
SANTA BARBARA, CALIFORNIA 93101
(Address of principal executive offices) (zip code)
(805) 963-8727
(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.
X Yes No
--- ---
The number of shares outstanding of the registrant's common stock, par value
$.01 per share, at August 1, 2003 was 8,286,632 shares.
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
----
NO.
----
PART 1. FINANCIAL INFORMATION (Unaudited)............................3
ITEM 1: FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED BALANCE SHEETS
June 30, 2003 and December 31, 2002..........................3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months and six months ended June 30, 2003 and 2002.....4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months and six months ended June 30, 2003 and 2002.....5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................8
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...12
ITEM 4: CONTROLS AND PROCEEDURES.....................................12
PART II: OTHER INFORMATION............................................12
ITEM 1: LEGAL PROCEEDINGS............................................12
ITEM 2: CHANGES IN SECURITIES........................................12
ITEM 3: DEFAULTS UPON SENIOR SECURITIES..............................12
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........12
ITEM 5: OTHER INFORMATION............................................13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.............................13
SIGNATURES ...............................................................14
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2003 2002
----------- -----------
ASSETS (Note 3)
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 2,258,000 $ 6,194,000
Accounts receivable, net......................................... 117,000 459,000
Inventories...................................................... 28,580,000 24,808,000
Prepaid expenses and other current assets........................ 928,000 457,000
Deferred income taxes............................................ 3,390,000 1,960,000
----------- -----------
Total current assets........................................... 35,273,000 33,878,000
PROPERTY AND EQUIPMENT, Net......................................... 4,671,000 5,234,000
INTANGIBLE ASSETS, Net.............................................. 123,000 149,000
OTHER ASSETS........................................................ 344,000 418,000
----------- -----------
TOTAL............................................................... $40,411,000 $39,679,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings............................................ $ 5,001,000 $ ---
Accounts payable................................................. 1,659,000 1,935,000
Income taxes payable............................................. --- 555,000
Accrued expenses and other current liabilities................... 3,290,000 4,159,000
----------- ---------
Total current liabilities...................................... 9,950,000 6,649,000
DEFERRED RENT....................................................... 616,000 693,000
DEFERRED GAIN ON SALE-LEASEBACK..................................... 327,000 354,000
----------- ---------
Total liabilities................................................ 10,893,000 7,696,000
----------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 3,000,000 shares authorized,
none issued and outstanding.................................... $ --- $ ---
Common stock, $.01 par value, 30,000,000 shares authorized,
9,698,284 issued at June 30, 2003 and December 31, 2002........ 97,000 97,000
Additional paid-in capital....................................... 20,510,000 20,510,000
Retained earnings................................................ 16,634,000 18,824,000
Treasury stock, 1,411,652 and 1,305,636 shares at June 30, 2003
and December 31, 2002, respectively............................ (7,723,000) (7,448,000)
----------- -----------
Total stockholders' equity..................................... 29,518,000 31,983,000
----------- -----------
TOTAL............................................................... $40,411,000 $39,679,000
=========== ============
See notes to the consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
2003 2002 2003 2002
---------------- ------------- ------------- -------------
NET SALES ............................................... $ 24,208,000 $ 25,763,000 $ 39,562,000 $ 43,309,000
COST OF GOODS SOLD ...................................... 9,990,000 10,755,000 17,241,000 19,035,000
---------------- ------------ ------------- -------------
GROSS PROFIT ........................................... 14,218,000 15,008,000 22,321,000 24,274,000
---------------- ------------ ------------- -------------
OPERATING EXPENSES:
Selling, marketing and distribution ............... 11,883,000 12,342,000 23,194,000 24,178,000
General and administrative ........................ 1,333,000 1,227,000 2,534,000 2,451,000
---------------- ------------ ------------- ------------
Total operating expenses....................... 13,216,000 13,569,000 25,728,000 26,629,000
---------------- ------------ ------------- ------------
INCOME (LOSS) FROM OPERATIONS.......................... 1,002,000 1,439,000 (3,407,000) (2,355,000)
INTEREST EXPENSE, NET.................................. 101,000 150,000 163,000 231,000
---------------- ------------ ------------- ------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES ................................... 901,000 1,289,000 (3,570,000) (2,586,000)
PROVISION (BENEFIT) FOR INCOME TAXES................... 342,000 496,000 (1,379,000) (996,000)
--------------- ----------- ------------- ------------
NET INCOME (LOSS)..................................... $ 559,000 $ 793,000 $ (2,191,000) $(1,590,000)
=============== =========== ============= ============
NET INCOME (LOSS) PER SHARE
BASIC AND DILUTED................................. $ 0.07 $ 0.09 $ (0.26) $ (0.19)
=============== =========== ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC AND DILUTED................................. 8,330,000 8,404,000 8,361,000 8,393,000
=============== =========== ============= =============
See notes to the consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30,
-------------------------------------
2003 2002
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(2,191,000) $(1,590,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization....................... 1,099,000 1,349,000
Amortization of deferred financing fees............. 76,000 72,000
Provision for losses on receivables................. (29,000) 34,000
Loss on disposition of property and equipment....... 1,000 ---
Deferred income taxes............................... (1,430,000) (1,035,000)
Changes in operating assets and liabilities:
Receivables.................................... 372,000 261,000
Inventories.................................... (3,772,000) (799,000)
Prepaid expenses and other assets.............. (471,000) (480,000)
Accounts payable............................... (276,000) (623,000)
Income taxes payable........................... (555,000) (1,983,000)
Accrued expenses and other current liabilities. (869,000) (1,077,000)
Deferred rent.................................. (77,000) 80,000
Deferred gain on sale-leaseback................ (27,000) (26,000)
------------ -----------
Net cash used in operating activities...... (8,149,000) (5,817,000)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (513,000) (568,000)
Proceeds from sale of property and equipment............ 7,000 2,000
Principal repayments of notes receivable................ --- 16,000
Other................................................... (7,000) (30,000)
------------ ----------
Net cash used in investing activities........... (513,000) (580,000)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net............................. 5,001,000 5,186,000
Repurchase of common stock............................. (275,000) (242,000)
------------ -----------
Net cash provided by financing activities...... 4,726,000 4,944,000
------------ -----------
NET DECREASE IN CASH........................................ (3,936,000) (1,453,000)
CASH, BEGINNING OF PERIOD................................... 6,194,000 3,055,000
------------ -----------
CASH, END OF PERIOD......................................... $ 2,258,000 $ 1,602,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest............................................ $ 166,000 $ 170,000
Income taxes........................................ $ 606,000 $ 2,022,000
See notes to the consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America 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 statements.
In the opinion of management, all adjustments, consisting only of
normal recurring entries necessary for a fair presentation have been included.
Operating results for the three-month and six-month periods ended June 30,
2003 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2003. For further information, refer to the
financial statements and footnotes thereto for Big Dog Holdings, Inc. and its
subsidiaries (the "Company") included in the Company's Annual Report on Form
10-K for the year ended December 31, 2002.
Note 2. Accounting for Stock-based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation, requires companies to estimate
employee stock compensation expense based on the fair value method of
accounting. However, the statement allows the alternative of continued use
of the intrinsic value method described in Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, if pro forma
disclosure of fair value amounts is provided. The Company has elected the
alternative of continued use of APB Opinion No. 25.
The following table illustrates the effect on net income and earnings
per share as if the fair value based method had been applied to all outstanding
and unvested stock option awards in each period presented:
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss):
As reported...................................... $ 559,000 $ 793,000 $ (2,191,000) $ (1,590,000)
Pro forma........................................ 360,000 565,000 (2,547,000) (1,998,000)
Net income (loss) per share:
As reported:
Basic and diluted................................ $ 0.07 $ 0.09 $ ( 0.26) $ (0.19)
Pro forma:
Basic and diluted................................ $ 0.04 $ 0.07 $ (0.31) $ (0.24)
Antidilutive options............................. 1,727,000 1,430,000 1,727,000 1,697,000
NOTE 3. Short-term Borrowings
In October 2001, the Company entered into a $30.0 million three-year
line of credit facility with Wells Fargo Retail Finance. This facility is
collateralized by substantially all of the Company's assets and requires
daily, weekly and monthly financial reporting as well as compliance with
financial, affirmative and negative covenants. This credit agreement provides
for a performance-pricing structured interest charge, ranging up to LIBOR
plus 1.75% which is based on excess availability levels. As of June 30, 2003,
the Company had $5.0 million outstanding under this credit agreement.
Additionally, the Company had $2.4 million of letters of credit outstanding
as of June 30, 2003. The letters of credit expire through December 2003.
NOTE 4. Stockholder's Equity
In March 1998, the Company announced that its Board authorized the
repurchase of up to $10,000,000 of its common stock. As of June 30, 2003, the
Company has repurchased 1,411,652 shares totaling $7,723,000.
NOTE 5. No Change in Listing
In February 2003, the Company was informed by the NASDAQ that the
Company's shares of common stock could be listed on the NASDAQ Small Cap
Market or over the counter on the OTCBB, rather than on the National Market,
unless they traded above a certain price for a designated period. In May 2003,
NASDAQ determined that the Company's shares had met that requirement and
will therefore remain listed on the NASDAQ National Market.
NOTE 6. Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 143, Accounting for Asset Retirement Obligations, which
provides standards on the accounting for obligations associated with the
retirement of long-lived assets. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The adoption of this statement did not have a
significant impact on the Company's consolidated financial statements.
In July 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supercedes SFAS No. 121 on the same topic and the accounting
and certain reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of a business (as defined in that Opinion).
This Statement also amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. SFAS No. 144 is
effective for fiscal periods beginning after December 15, 2001. The Company
implemented the pronouncement beginning in the first quarter of fiscal year
2002. The adoption of this statement did not have an impact on the Company's
consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses exit or disposal
activities including one-time involuntary employee termination benefits,
contract termination costs and costs to consolidate facilities or relocate
employees. Existing accounting guidelines (principally Emerging Issue Task
Force Issue 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity) require companies to recognize
a liability when management commits itself or announces plans to exit or
dispose of an activity. SFAS No. 146 will prohibit companies from recognizing
an exit or disposal liability until the liability has been incurred,
generally the "communication date" for one-time termination benefits and the
contract termination or "cease use date" for contract costs, and will
require these liabilities to be measured at fair value. This statement
is effective for exit or disposal activities initiated after December 31,
2002. The adoption of the provisions of this statement did not have a
significant impact on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148. SFAS No. 123, as
amended by SFAS No. 148, requires companies to estimate employee stock
compensation expense based on the fair value method of accounting. However,
the statement allows the alternative of continued use of the intrinsic value
method described in APB Opinion No. 25, if pro forma disclosure of fair value
amounts is provided. The Company has elected the alternative of continued use
of APB Opinion No. 25. See Note 2.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under Statement 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The Company does not expect the adoption
of this statement to have a significant impact on the Company's consolidated
financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial
position. Previously, many of those financial instruments were classified as
equity. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company does not
expect the adoption of this statement to have a significant impact on the
Company's consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which elaborates on required
disclosures by a guarantor in its financial statements about obligations
under certain guarantees that it has issued and clarifies the need for a
guarantor to recognize, at the inception of certain guarantees, a liability
for the fair value of the obligation undertaken in issuing the guarantee.
The Company adopted the provisions of this Interpretation relating to
initial recognition and measurement of guarantor liabilities, which are
effective for qualifying guarantees entered into or modified after
January 1, 2003. The disclosure requirements in this Interpretation are
effective for financial statements of interim or annual periods ending
after December 15, 2002. The adoption of this interpretation did not
have a impact on the Company's consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, which addresses consolidation
by a business of variable interest entities in which it is the primary
beneficiary. The Interpretation is effective immediately for certain
disclosure requirements and variable interest entities created after
January 31, 2003, and for the quarter ended September 30, 2003 for
all other variable interest entities. The Company adopted the provisions of
this Interpretation and it did not have a significant impact on the
Company's consolidated financial statements.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction
with the Company's financial statements and notes related thereto.
Certain minor differences in the amounts below result from rounding of the
amounts shown in the consolidated financial statements.
This quarterly report on Form 10-Q contains forward-looking
statements within the meaning of federal securities laws, which are intended
to be covered by the safe harbors created thereby. Those statements include,
but may not be limited to, the discussions of the Company's operating and
growth strategy. Investors are cautioned that all forward-looking statements
involve risks and uncertainties including, without limitation, those set
forth under the caption "risk factors" in the business section of the
Company's annual report on Form 10-K for the year ended December 31, 2002.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could prove to be inaccurate, and therefore, there can be no
assurance that the forward-looking statements included in this quarterly
report on Form 10-Q will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of the company
will be achieved. The Company undertakes no obligation to publicly release
any revisions to an forward-looking statements contained herein to reflect
events and circumstances occurring after the date hereof or to reflect
the occurrence of unanticipated events.
The following discussion should be read in conjunction with the
Company's unaudited financial statements and notes thereto included elsewhere
in this quarterly report on form 10-Q, and the annual audited financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2002 filed with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2003 and 2002
NET SALES. Net sales consist of sales from the Company's stores,
catalog, internet website, and wholesale accounts, all net of returns and
allowances. Net sales decreased to $24.2 million for the three months ended
June 30, 2003 from $25.8 million for the same period in 2002, a decrease of
$1.6 million, or 6.2%. Of the decrease, $1.4 million was attributable to a
5.9% comparable stores sales decrease and $0.3 million was attributable to a
decrease in sales for stores not yet qualifying as comparable stores
(includes new store openings which is netted against store closures).
This was offset by a $0.1 million increase in the Company's mail order
business. The decrease in comparable store sales is primarily related to
lower traffic in the Company's stores.
GROSS PROFIT. Gross profit decreased to $14.2 million for the three
months ended June 30, 2003 from $15.0 million for the same period in 2002,
a decrease of $0.8 million, or 5.3%. As a percentage of net sales, gross
profit increased to 58.7% in the three months ended June 30, 2003 from 58.3%
for the same period in 2002. The increase in gross margin percentage is
primarily attributable to a shift in sales mix from lower margined to higher
margined sales, particularly graphic T-shirts and other graphic business.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses consist of expenses associated with creating,
distributing and selling products through all channels of distribution,
including occupancy, payroll and catalog costs. Selling, marketing and
distribution expenses decreased to $11.9 million in the three months ended
June 30, 2003 from $12.3 million for the same period for 2002, a decrease of
$0.4 million, or 3.7%. The decrease in selling, marketing and distribution
expenses is primarily attributable to retail cost expense reductions,
particularly lease occupancy expenses, as well as lower depreciation expense.
As a percentage of net sales, these expenses increased to 49.1% in the three
months ended June 30, 2003 from 47.9% in the same period in 2002, an increase
of 1.2%. The increase as a percentage of net sales is a result of having a
lower sales base, which is primarily related to the decrease in comparable
store sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of administrative salaries, corporate occupancy costs and
other corporate expenses. General and administrative expenses increased to
$1.3 million for the three months ended June 30, 2003 from $1.2 million for
the same period in 2002. As a percentage of net sales, these expenses
increased to 5.5% in the three months ended June 30, 2003 from 4.8% for the
same period in 2002. The increase as a percentage of net sales is a result of
having a lower sales base.
INTEREST EXPENSE, NET. Interest expense, net decreased to $0.1
million for the three months ended June 30, 2003 from $0.2 million for the
same period in 2002.
INCOME TAXES. Income tax expense decreased to $0.3 million for the
three months ended June 30, 2003 from $0.5 million for the same period in 2002.
Six Months Ended June 30, 2003 and 2002
NET SALES. Net sales decreased to $39.6 million for the six months
ended June 30, 2003 from $43.3 million for the same period in 2002, a
decrease of $3.7 million, or 8.6%. Of the decrease, $3.3 million was
attributable to an 8.5% comparable stores sales decrease, $0.5 million was
attributable to a decrease in sales for stores not yet qualifying as
comparable stores (includes new store openings which is netted against store
closures), and $0.1 million was attributable to a decrease in the Company's
wholesale business. This was offset by a $0.2 million increase in the
Company's mail order business. The decrease in comparable store sales is
primarily related to lower traffic in the Company's stores.
GROSS PROFIT. Gross profit decreased to $22.3 million for the six
months ended June 30, 2003 from $24.3 million for the same period in 2002,
a decrease of $2.0 million, or 8.0%. As a percentage of net sales, gross
profit increased to 56.4% in the six months ended June 30, 2003 from 56.0%
for the same period in 2002.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses decreased to $23.2 million in the six months ended
June 30, 2003 from $24.2 million in the same period for 2002, a decrease of
$1.0 million, or 4.1%. The decrease in selling, marketing and distribution
expenses is primarily attributable to retail cost expense reductions,
particularly lease occupancy expenses, as well as lower depreciation expense.
As a percentage of net sales, these expenses increased to 58.6% in the
six months ended June 30, 2003 from 55.8% in the same period in 2002,
an increase of 2.8%. The increase as a percentage of net sales is a result
of having a lower sales base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the six months ended June 30, 2003 and 2002 remained constant
at $2.5 million. As a percentage of net sales, these expenses increased
to 6.4% in the six months ended June 30, 2003 from 5.7% in the same period in
2002. The increase as a percentage of net sales is a result of having a lower
sales base.
INTEREST EXPENSE, NET. Interest expense, net for the six months
ended June 30, 2003 and 2002 remained constant at $0.2 million.
INCOME TAXES. The Company recorded an income tax benefit at its
historical effective income tax rate of 38.6%. The Company believes it will
fully realize this benefit due to projected seasonal net income in the third
and forth quarters as discussed in 'Seasonality' below, or from net operating
loss carrybacks to previous years.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of 2003, the Company's primary uses of
cash were for merchandise inventories, accrued liabilities and income taxes.
The Company satisfied its cash requirements from existing cash balances and
short-term borrowings under its credit agreement.
Cash used in operating activities was $8.1 million and $5.8 million
for the six months ended June 30, 2003 and 2002, respectively. The increase
in cash used in operating activities is principally due to an increase in
inventory purchases during the period.
Cash used in investing activities was $0.5 million and $0.6
million for the six months ended June 30, 2003 and 2002, respectively.
Cash flows used in investing activities in 2003 and 2002 primarily related
to capital additions to the Company's existing stores.
Cash provided by financing activities decreased to $4.7 million in
the six months ended June 30, 2003 from $4.9 million in the same
period in 2002. In the six months ended June 30, 2003, the Company had net
borrowings of $5.0 million under its borrowing agreement and used $0.3
million to repurchase common stock. In the six months ended June 30, 2002,
the Company had net borrowings of $5.2 million under its borrowing agreement
and used $0.2 million to repurchase common stock.
In October 2001, the Company entered into a $30.0 million three-year
line of credit facility with Wells Fargo Retail Finance. This facility is
collateralized by substantially all of the Company's assets and requires
daily, weekly and monthly financial reporting as well as compliance with
financial, affirmative and negative covenants. This credit agreement provides
for a performance-pricing structured interest charge, ranging up to LIBOR
plus 1.75% which is based on excess availability levels. As of June 30, 2003,
the Company had $5.0 million outstanding under this credit agreement.
Additionally, the Company had $2.4 million of letters of credit outstanding
as of June 30, 2003. The letters of credit expire through December 2003.
The Company has made no changes to its critical accounting policies as
disclosed in the Annual Report on Form 10-K for the year ended December 31,
2002.
COMMITMENTS AND OBLIGATIONS
As of June 30, 2003, we had the following obligations:
Amounts of Commitment Expiration per Period
-------------------------------------------
Total
----
Amounts Less than 1 Over 5
-------- ----------- ------
Committed year 1 to 3 years 4 to 5 years years
Contractual Obligations: --------- ---- ------------ ------------ ------
Operating leases............................ $41,857,000 $14,280,000 $18,612,000 $6,935,000 $2,030,000
Other Commercial Commitments:
Letters of credit......................... 2,039,000 2,039,000 --- --- ---
Standby letters of credit................. 315,000 315,000 --- --- ---
----------- ----------- ---------- ---------- ----------
Total Commitments........................... $44,211,000 $16,634,000 $18,612,000 $6,935,000 $2,030,000
----------- ----------- ---------- ---------- ----------
SEASONALITY
The Company believes its seasonality is somewhat different than many
apparel retailers since a significant number of the Company's stores are
located in tourist areas and outdoor malls that have different visitation
patterns than urban and suburban retail centers. The third and fourth quarters
(consisting of the summer vacation, back-to-school and Christmas seasons)
have historically accounted for the largest percentage of the Company's annual
sales and profits. The Company has historically incurred operating losses
in its first quarter and may be expected to do so in the foreseeable future.
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe it has material exposure to losses from
market-rate sensitive instruments. The Company has not invested in derivative
financial instruments. The Company has a credit facility with a
performance-pricing structured interest charge, ranging up to LIBOR plus 1.75%
based on excess availability levels. See "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources."
ITEM 4:
CONTROLS AND PROCEDURES
At June 30, 2003, the Company completed an evaluation, under the
supervision and with the participation of the Company's chief executive
officer and chief financial officer of the effectiveness of the Company's
disclosure controls and procedures. Based on this evaluation, the Company's
chief executive officer and chief financial officer concluded that the
Company's disclosure controls and procedures were effective with respect to
timely communicating to them all material information required to be disclosed
in this report as it related to the Company and its subsidiaries.
There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect the internal controls
subsequent to the date the Company completed this evaluation.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is involved from time to time in litigation
incidental to its business. The Company believes that the
outcome of such litigation will not have a material adverse
effect on its operation or financial condition.
ITEM 2: CHANGES IN SECURITIES
Not applicable
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant's Annual Meeting of Stockholders was held on
June 6, 2003.
Proxies for the Annual Meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934, as
amended. There was no solicitation in opposition
to management's nominees as listed in the Proxy Statement.
The matters voted upon at the Annual Meeting and the results
thereof were as follows:
1. To elect Class III Directors Fred Kayne and
Andrew Feshbach, each to hold office for a three-year
term and until each of their successors are elected
and qualified.
2. To ratify the election of Deloitte & Touche LLP as
independent certified public accountants for the year
ending December 31, 2003.
More than the number of shares required for approval voted
in favor of each of the above matters and each was therefore
approved.
ITEM 5: OTHER INFORMATION
In February 2003, the Company was informed by the NASDAQ that
the Company's shares of common stock could be listed on the
NASDAQ Small Cap Market or over the counter on the OTCBB,
rather than on the National Market, unless they traded above
a certain price for a designated period. In May 2003,
NASDAQ determined that the Company's shares had met that
requirement and will therefore remain listed on the
NASDAQ National Market.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIG DOG HOLDINGS, INC.
August 13, 2003 /s/ ANDREW D. FESHBACH
----------------------
Andrew D. Feshbach
President and Chief Executive Officer
(Principal Executive Officer)
August 13, 2003 /s/ ROBERTA J. MORRIS
----------------------
Roberta J. Morris
Chief Financial Officer and Treasurer
(Principal Financial Officer)