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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 September 30, 2002
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 November 1, 2002 was 8,392,648 shares.
BIG DOG HOLDINGS, INC
INDEX TO FORM 10-Q
PAGE
NO.
PART 1. FINANCIAL INFORMATION............................................3
ITEM 1: FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED BALANCE SHEETS
September 30, 2002 and December 31, 2001.........................3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months and nine months ended September 30, 2002 and 2001...4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2002 and 2001....................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................7
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......11
ITEM 4: CONTROLS AND PROCEEDURES........................................11
PART II. OTHER INFORMATION...............................................11
ITEM 1: LEGAL PROCEEDINGS...............................................11
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...............................................12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K................................12
SIGNATURES..................................................................13
PART 1. .........FINANCIAL INFORMATION
ITEM 1: .........FINANCIAL STATEMENTS (Unaudited)
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2002 2001
------------------ ------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 851,000 $ 3,055,000
Accounts receivable, net......................................... 379,000 812,000
Inventories...................................................... 32,510,000 26,777,000
Prepaid expenses and other current assets........................ 1,607,000 473,000
Deferred income taxes............................................ 2,001,000 1,954,000
----------- ------------
Total current assets........................................... 37,348,000 33,071,000
PROPERTY AND EQUIPMENT, Net......................................... 5,616,000 6,634,000
INTANGIBLE ASSETS, Net.............................................. 133,000 173,000
OTHER ASSETS........................................................ 336,000 429,000
----------- ------------
TOTAL............................................................... $43,433,000 $ 40,307,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings............................................ $ 5,323,000 $ 1,767,000
Accounts payable................................................. 5,974,000 2,923,000
Income taxes payable............................................. 91,000 1,983,000
Accrued expenses and other current liabilities................... 2,614,000 4,137,000
----------- ------------
Total current liabilities...................................... 14,002,000 10,810,000
DEFERRED RENT....................................................... 752,000 683,000
DEFERRED GAIN ON SALE-LEASEBACK..................................... 367,000 406,000
----------- ------------
Total liabilities................................................ 15,121,000 11,899,000
----------- ------------
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 September 30, 2002 and December 31, 2001... 97,000 97,000
Additional paid-in capital....................................... 20,510,000 20,510,000
Retained earnings................................................ 15,153,000 15,007,000
Treasury stock, 1,305,636 and 1,233,220 shares at September 30,
2002 and December 31, 2001, respectively....................... (7,448,000) (7,206,000)
----------- ------------
Total stockholders' equity..................................... 28,312,000 28,408,000
----------- ------------
TOTAL............................................................... $ 43,433,000 $ 40,307,000
============= ============
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- --------------------------------
2002 2001 2002 2001
----------------- --------------- ---------------- -------------
NET SALES................................................ $ 30,114,000 $ 30,204,000 $ 73,423,000 $ 72,384,000
COST OF GOODS SOLD....................................... 12,697,000 12,884,000 31,732,000 31,606,000
-------------- ------------ ------------- -------------
GROSS PROFIT............................................. 17,417,000 17,320,000 41,691,000 40,778,000
-------------- ------------ ------------- -------------
OPERATING EXPENSES:
Selling, marketing and distribution................. 13,117,000 12,720,000 37,295,000 37,998,000
General and administrative.......................... 1,289,000 1,181,000 3,740,000 3,953,000
-------------- ------------ ------------- -------------
Total operating expenses........................... 14,406,000 13,901,000 41,035,000 41,951,000
-------------- ------------ ------------- -------------
INCOME (LOSS) FROM OPERATIONS............................ 3,011,000 3,419,000 656,000 (1,173,000)
OTHER INCOME............................................. --- --- --- 334,000
INTEREST INCOME.......................................... 1,949,000 --- 1,949,000 ---
INTEREST EXPENSE......................................... (2,137,000) (370,000) (2,368,000) (957,000)
--------------- ------------ ------------- -------------
INCOME (LOSS) BEFORE (PROVISION) BENEFIT
FOR INCOME TAXES ..................................... 2,823,000 3,049,000 237,000 (1,796,000)
(PROVISION) BENEFIT FOR INCOME TAXES..................... (1,087,000) (1,174,000) (91,000) 741,000
--------------- ------------ ------------- -------------
NET INCOME (LOSS)........................................ $ 1,736,000 $ 1,875,000 $ 146,000 $ (1,055,000)
=============== ============ ============= =============
NET INCOME (LOSS) PER SHARE
BASIC AND DILUTED................................... $ 0.21 $ 0.22 $ 0.02 $ (0.12)
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC............................................... 8,393,000 8,453,000 8,395,000 8,455,000
=============== ============ ============= =============
DILUTED............................................. 8,393,000 8,462,000 8,400,000 8,455,000
=============== ============ ============= =============
.
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
--------------------------------------
2002 2001
---------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................... $ 146,000 $ (1,055,000)
Adjustments to reconcile net income (loss) to net cash in
operating activities:
Depreciation and amortization..................................... 2,013,000 2,775,000
Amortization of deferred financing fees........................... 115,000 115,000
Provision for losses on receivables............................... 52,000 417,000
Loss (Gain) on disposition of property and equipment.............. 16,000 (74,000)
Gain on sale of investment........................................ --- (334,000)
Deferred income taxes............................................. (47,000) (741,000)
Changes in operating assets and liabilities:
Accounts receivable, net..................................... 382,000 (411,000)
Inventories.................................................. (5,733,000) (11,510,000)
Prepaid expenses and other current assets.................... (1,134,000) (807,000)
Account Payable.............................................. 3,051,000 767,000
Income taxes payable......................................... (1,892,000) (1,732,000)
Accrued expenses and other current liabilities............... (1,454,000) (1,487,000)
Deferred rent................................................ 69,000 (207,000)
Deferred gain on sale-leaseback.............................. (39,000) (40,000)
----------- -------------
Net cash used in operating activities.................... (4,455,000) ( 14,324,000)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (965,000) (741,000)
Proceeds from sale of U.S. Treasury bonds............................. 95,269,000 ---
Collateral required for repurchase of U.S. Treasury Bonds............. (95,338,000) ---
Proceeds from sale of investment...................................... --- 334,000
Proceeds from sale of property and equipment.......................... 16,000 178,000
Principal repayments of notes receivable.............................. 16,000 107,000
Other................................................................. (61,000) (54,000)
----------- -------------
Net cash used in investing activities.................... (1,063,000) (176,000)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock............................................ (242,000) (126,000)
Short-term borrowings, net............................................ 3.556,000 10,500,000
------------ -------------
Net cash provided by financing activities................ 3,314,000 10,374,000
------------ -------------
NET DECREASE IN CASH....................................................... (2,204,000) (4,126,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 3,055,000 4,376,000
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 851,000 $ 250,000
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest.......................................................... $ 239,000 $ 958,000
Income taxes...................................................... $ 2,030,000 $ 1,732,000
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
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 for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulations 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 nine-month period ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. There have been no changes in significant accounting policies
or contractual obligations since the filing of the Company's 10-K for the year
ended December 31, 2001. For further information, refer to the financial
statements and footnotes thereto for Big Dog Holdings, Inc. and its subsidiary
(the "Company") included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
NOTE 2. 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
secured 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 facility provides for a performance-
pricing structured interest charge, ranging up to LIBOR plus 1.75% which is
based on excess availability levels. As of September 30, 2002, the Company had
approximately $5.3 million outstanding under this facility. Additionally, the
Company had $0.3 million of letters of credit outstanding as of September 30,
2002. The letters of credit expire through December 2002.
NOTE 3. 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. Between January 1, 2002
and September 30, 2002, the Company repurchased 72,416 shares of common stock
totaling $242,000.
NOTE 4. Short Bond Transaction
During July 2002, the Company entered into two transactions relating to
the short-sale and repurchase of $95.3 million of U.S. Treasury Securities. The
transactions were intended to address interest rate exposure and generate
capital gains that could be used to offset previously incurred capital losses.
The first transaction, which represented $95.3 million of U. S. Treasury
Securities, is scheduled to mature on November 15, 2002. In the second
transaction, the Company has an obligation to repurchase $95.3 million of U. S.
Treasury Securities on or before November 15, 2002. The Company has placed the
proceeds from the short sale into an interest-bearing collateral account to
provide for the repurchase. As of September 30, 2002, the Company has recorded
interest income of $1.9 million, interest expense of $2.0 million, and an
obligation of $0.1 million included in accrued expenses and other current
liabilities.
NOTE 5. Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141 requires that all business combinations be accounted for under the
purchase method. The statement further requires separate recognition of
intangible assets that meet one of two criteria. The statement applies to all
business combinations initiated after June 30, 2001.
SFAS No. 142 requires that an intangible asset that is acquired shall
be initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. SFAS No.
142 is effective for fiscal periods beginning after December 15, 2001. The
adoption of SFAS Nos. 141 and 142 did not have a material impact on the
Company's financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of" and Accounting Principles Board Opinion ("APB") No. 30,
"Reporting the Results of Operations - Reporting the Effects of the Disposal of
a Segment Business and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions." SFAS No. 144 establishes a single accounting model for
assets to be disposed of by sale whether previously held and used or newly
acquired. SFAS No. 144 retains the provisions of APB No. 30 for presentation of
discontinued operations in the income statement, but broadens the presentation
to include a component of an entity. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The adoption of SFAS No. 144 did not have
a material impact on the Company's financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
The provisions of this statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The adoption of SFAS No. 146 may have a significant impact on the timing of the
recognition of costs associated with restructuring activities, as compared to
current GAAP reporting requirements.
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, 2001. 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 any 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, 2001 filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2002 and 2001
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 $30.1 million for the three months ended
September 30, 2002 from $30.2 million for the same period in 2001, a decrease of
$0.1 million, or 0.3%. The decrease was attributable to a $0.1 million decrease
in the Company's wholesale business, catalog and internet sales. New stores (not
yet qualifying as comparable stores) sales were $1.1 million for the three
months ended September 30, 2002. This was offset by a 4.0% decrease in
comparable stores sales, or $1.1 million.
GROSS PROFIT. Gross profit increased to $17.4 million for the three
months ended September 30, 2002 from $17.3 million for the same period in 2001,
an increase of $0.1 million, or 0.6%. As a percentage of net sales, gross profit
increased to 57.8% in the three months ended September 30, 2002 from 57.3% in
the same period in 2001.
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
increased to $13.1 million for the three months ended September 30, 2002 from
$12.7 million for the same period in 2001, an increase of $0.4 million, or 3.1%.
As a percentage of net sales, these expenses increased to 43.6% for the three
months ended September 30, 2002 from 42.1% for the same period in 2001, an
increase of 1.5%. During the three month period ended September 30, 2002, the
Company had an average of 209 stores in operation compared to an average of 200
stores open in the same period 2001. The net increase in selling, marketing and
distribution expenses is primarily attributable to additional store operating
costs associated with new stores.
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 September 30, 2002 from $1.2 million for the
same period in 2001, an increase of $0.1 million, or 8.3%. As a percentage of
net sales, these expenses increased to 4.3% for the three months ended September
30, 2002 from 3.9% for the same period in 2001.
INTEREST INCOME. In the three months ended September 30, 2002,
interest income related to interest earned on a short bond transaction. During
July 2002, the Company entered into two transactions relating to the short-sale
and repurchase of $95.3 million of U. S. Treasury Securities. The transactions
were intended to address interest rate exposure and generate capital gains that
could be used to offset previously incurred capital losses. The first
transaction, which represented $95.3 million of U. S. Treasury Securities, is
scheduled to mature on November 15, 2002. In the second transaction, the
Company has an obligation to repurchase $95.3 million of U. S. Treasury
Securities on or before November 15, 2002. The Company has placed the proceeds
from the short sale into an interest-bearing collateral account to provide for
the repurchase.
INTEREST EXPENSE. Interest expense increased to $2.1 million for the
three months ended September 30, 2002 from $0.4 million for the same period in
2001. Such increase was due to $2.0 million of interest expense related to the
Company's short bond transaction (See "Interest Income"), and otherwise interest
expense decreased to $0.1 million related to lower average outstanding
short-term borrowings during the 2002 period as compared to 2001.
Nine Months Ended September 30, 2002 and 2001
NET SALES. Net sales increased to $73.4 million for the nine months
ended September 30, 2002 from $72.4 million for the same period in 2001, an
increase of $1.0 million, or 1.4%. Of the increase, $0.2 million was
attributable to an increase in the Company's catalog and internet business, $0.1
million was attributable to an increase in the Company's wholesale business, and
$2.3 million was attributable to new stores (not yet qualifying as comparable
stores). This was offset by a 2.3% decrease in comparable store sales, or $1.6
million.
GROSS PROFIT. Gross profit increased to $41.7 million for the nine
months ended September 30, 2002 from $40.8 million for the same period in 2001,
an increase of $0.9 million, or 2.2%. This increase is primarily attributable to
higher product sales. As a percentage of net sales, gross profit increased to
56.8% for the nine months ended September 30, 2002 from 56.3% for the same
period in 2001.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses decreased to $37.3 million for the nine months ended
September 30, 2002 from $38.0 million for the same period in 2001, a decrease of
$0.7 million, or 1.8%. As a percentage of net sales, these expenses decreased to
50.8% for the nine months ended September 30, 2002 from 52.5% for the same
period in 2001, a decrease of 1.7%. The decrease in selling, marketing and
distribution expenses is primarily attributable to a recovery against a loss
reserve, retail cost expense reductions, particularly lease occupancy expenses,
and a reduction in general marketing expenses. Additionally, in the nine months
ended September 30, 2001, selling, marketing and distribution expenses included
a $0.4 million loss reserve on wholesale receivables due to the bankruptcy
filing of a significant wholesale account.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased to $3.7 million for the nine months ended September 30, 2002
from $4.0 million for the same period in 2001, a decrease of $0.3 million, or
7.5%. As a percentage of net sales, these expenses decreased to 5.1% for the
nine months ended September 30, 2002 from 5.5% for the same period in 2001. In
the nine months ended September 30, 2001, general and administrative expenses
included $0.3 million charitable donations of inventory.
OTHER INCOME. In the nine months ended September 30, 2001, other income
resulted from a $0.3 million gain on the sale of PETsMART.com stock. After
careful consideration of the internet and capital markets, the Company wrote-off
its entire $3,000,000 investment in PETsMART.com stock at December 31, 2000.
Subsequently, in June 2001, a proposal and acceptance occurred whereby the
Company sold this stock for $334,000.
INTEREST INCOME. In the nine months ended September 30, 2002, interest
income related to interest earned on a short bond transaction. During July
2002, the Company entered into two transactions relating to the short-sale and
repurchase of $95.3 million of U. S. Treasury Securities. The transactions were
intended to address interest rate exposure and generate capital gains that could
be used to offset previously incurred capital losses. The first transaction,
which represented $95.3 million of U. S. Treasury Securities, is scheduled to
mature on November 15, 2002. In the second transaction, the Company has an
obligation to repurchase $95.3 million of U.S. Treasury Securities on or before
November 15, 2002. The Company has placed the proceeds from the short sale into
an interest-bearing collateral account to provide for the repurchase.
INTEREST EXPENSE. Interest expense increased to $2.4 million for the
nine months ended September 30, 2002 from $1.0 million for the same period in
2001. Such increase was due to $2.0 million of interest expense related to the
Company's short bond transaction (See "Interest Income"), and otherwise interest
expense decreased to $0.4 million related to lower average outstanding
short-term borrowings during the 2002 period as compared to 2001.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of 2002, the Company's primary use of cash was
for inventory purchases, income taxes and capital expenditures. The Company
satisfied its cash requirements from existing cash balances and short-term
borrowings under its credit agreement. The Company believes that cash flow from
its operations and available credit line will be sufficient to meet operating
needs and capital spending requirements for the remaining year.
Cash used in operating activities was $4.5 million and $14.3 million
for the nine months ended September 30, 2002 and 2001, respectively. In addition
to a $0.1 million net income in the 2002 period compared to a $1.1 million net
loss in the 2001 period, the decrease in net cash utilization for the 2002
period as compared to the 2001 period is primarily due to a reduction in
inventory purchases, as well as an increase in accounts payable and other
current liabilities.
Cash used in investing activities was $1.1 million and $0.2 million for
the nine months ended September 30, 2002 and 2001, respectively. Cash used in
investing activities in the first nine months of 2002 primarily related to 6 new
store openings and capital additions to the Company's existing stores.
Additionally in the 2002 period, the Company had an offsetting investment
transaction related to the short bond transaction (See Note 4. Short Bond
Transaction) whereby $95.3 million of proceeds from the sale of U.S. Treasury
Bonds was offset by $95.3 million in collateral required for the repurchase of
such bonds. Cash used in investing activities for the first nine months of 2001
primarily related to 5 new store openings and capital additions to the Company's
existing stores, and was offset by proceeds received from the sale of
investments, property, and equipment.
Cash provided by financing activities decreased to $3.3 million in the
nine months ended September 30, 2002 from $10.4 million for the same period in
2001. In the nine months ended September 30, 2002, the Company had net
borrowings of $3.5 million under its borrowing agreement and used $0.2 million
to repurchase common stock. In the nine months ended September 30, 2001, the
Company borrowed $10.5 million under its revolving credit facility and used $0.1
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
secured 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 facility provides for a
performance-pricing structured interest charge, ranging up to LIBOR plus 1.75%
which is based on excess availability levels. As of September 30, 2002, the
Company had approximately $5.3 million outstanding under this facility.
Additionally, the Company had $0.3 million of letters of credit outstanding as
of September 30, 2002. The letters of credit expire through December 2002.
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 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 PROCEEDURES
Within 90 days prior to the date of this report, 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 pursuant to Rule 13a-14 of the
Exchange Act. 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 subsidiary. 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
In February 2001, the World Wrestling Federation Entertainment
Inc. ("WWF") filed suit against Big Dog Holdings, Inc. in the
United States District Court for the Western District of
Pennsylvania. The suit contains claims for copyright and
trademark infringement, unfair competition and related claims
relating to our sale of T-shirts and dolls that parody the WWF
and its wrestlers. The action seeks injunctive relief,
unspecified damages, costs and attorneys fees. We are
vigorously defending the action and believe we have
substantial defenses. Although we cannot predict the outcome
of this matter, we do not believe the outcome of this action
will have a material adverse effect on our results of
operations or financial condition.
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
Not applicable
ITEM 5: OTHER INFORMATION
Not applicable
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
None
(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.
November 14, 2002 /s/ ANDREW D. FESHBACH
----------------------
Andrew D. Feshbach
President and Chief Executive Officer
(Principal Executive Officer)
November 14, 2002 /s/ ROBERTA J. MORRIS
---------------------
Roberta J. Morris
Chief Financial Officer and Treasurer
(Principal Financial Officer)
BIG DOG HOLDINGS, INC.
CERTIFICATION CHIEF EXECUTIVE OFFICER
I, Andrew Feshbach, CEO, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Big Dog
Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 14, 2002
/s/ ANDREW D. FESHBACH
----------------------
Andrew D. Feshbach
President and Chief Executive Officer
BIG DOG HOLDINGS, INC.
CERTIFICATION CHIEF FINANCIAL OFFICER
I, Roberta Morris, CFO, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Big Dog
Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 14, 2002
/s/ ROBERTA J. MORRIS
---------------------
Roberta J. Morris
Chief Financial Officer and Treasurer