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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, 2004
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.
Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.)
Yes X No
---- ---
The number of shares outstanding of the registrant's common stock, par value
$.01 per share, at August 9, 2004 was 9,165,532 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, 2004 and December 31, 2003.......................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and six months ended June 30, 2004
and 2003..................................................... 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2004 and 2003...................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................... 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 13
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK... 19
ITEM 4: CONTROLS AND PROCEDURES...................................... 19
PART II: OTHER INFORMATION............................................ 19
ITEM 1: LEGAL PROCEEDINGS............................................ 19
ITEM 2: CHANGES IN SECURITIES,USE OF PROCEEDS AND ISSUER
PURCHASE OF EQUITY SECURITIES................................ 19
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.............................. 19
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 20
ITEM 5: OTHER INFORMATION.............................................20
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K............................. 20
SIGNATURES............................................................... 21
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
June 30, December 31,
2004 2003
--------------------- ----------------------
ASSETS (Notes 2 and 3)
CURRENT ASSETS:
Cash and cash equivalents $ 1,525,000 $ 10,503,000
Receivables, net 229,000 116,000
Inventories 41,653,000 24,752,000
Prepaid expenses and other current assets 1,111,000 789,000
Deferred income taxes 1,559,000 875,000
----------------------- -----------------------
Total current assets 46,077,000 37,035,000
PROPERTY AND EQUIPMENT, Net 10,673,000 4,144,000
INTANGIBLE ASSETS, Net 217,000 211,000
DEFERRED INCOME TAXES 1,394,000 946,000
OTHER ASSETS 448,000 246,000
----------------------- ------------------------
TOTAL $ 58,809,000 $ 42,582,000
======================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
(Notes 2 and 3)
Short-term borrowings $ 7,046,000 $ -
Current portion of notes payable 97,000 -
Accounts payable 5,055,000 1,932,000
Income taxes payable 83,000 1,513,000
Accrued expenses and other current
liabilities 5,860,000 4,016,000
----------------------- ------------------------
Total current liabilities 18,141,000 7,461,000
LONG TERM BORROWINGS 1,450,000 -
NOTE PAYABLE 487,000 -
CAPITAL LEASE OBLIGATIONS 351,000 -
DEFERRED RENT 690,000 606,000
DEFERRED GAIN ON SALE-LEASEBACK 274,000 301,000
----------------------- ------------------------
Total liabilities 21,393,000 8,368,000
----------------------- ------------------------
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,
10,695,530 and 9,698,284 issued at June 30, 2004 and
December 31, 2003, respectively 107,000 97,000
Additional paid-in capital 25,447,000 20,510,000
Retained earnings 19,716,000 21,461,000
Treasury stock, 1,455,152 shares at
June 30, 2004 and December 31, 2003 (7,854,000) (7,854,000)
----------------------- ------------------------
Total stockholders' equity 37,416,000 34,214,000
----------------------- ------------------------
TOTAL $ 58,809,000 $ 42,582,000
======================= =========================
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,
------------------------------------------- -------------------------------------------
2004 2003 2004 2003
-------------------- ------------------- -------------------- -------------------
NET SALES $41,043,000 $24,208,000 $62,924,000 $39,562,000
COST OF GOODS SOLD 18,013,000 9,990,000 28,672,000 17,241,000
-------------------- ------------------- -------------------- -------------------
GROSS PROFIT 23,030,000 14,218,000 34,252,000 22,321,000
-------------------- ------------------- -------------------- -------------------
OPERATING EXPENSES:
Selling, marketing and
distribution 18,875,000 11,883,000 33,008,000 23,194,000
General and
administrative 1,936,000 1,333,000 3,733,000 2,534,000
-------------------- ------------------- -------------------- -------------------
Total operating
expenses 20,811,000 13,216,000 36,741,000 25,728,000
-------------------- ------------------- -------------------- -------------------
INCOME (LOSS) FROM
OPERATIONS 2,219,000 1,002,000 (2,489,000) (3,407,000)
OTHER INCOME (82,000) - (82,000) -
INTEREST EXPENSE 283,000 101,000 407,000 163,000
-------------------- ------------------- -------------------- -------------------
INCOME (LOSS) BEFORE
PROVISION(BENEFIT)
FOR INCOME TAXES 2,018,000 901,000 (2,814,000) (3,570,000)
PROVISION (BENEFIT)
FOR INCOME TAXES 767,000 342,000 (1,069,000) (1,379,000)
-------------------- ------------------- -------------------- -------------------
NET INCOME (LOSS) $ 1,251,000 $ 559,000 $(1,745,000) $(2,191,000)
==================== =================== ==================== ===================
NET INCOME (LOSS)
PER SHARE:
BASIC $ 0.15 $ 0.07 $ (0.21) $ (0.26)
==================== =================== ==================== ===================
DILUTED $ 0.14 $ 0.07 $ (0.21) $ (0.26)
==================== =================== ==================== ===================
WEIGHTED AVERAGE
SHARES OUTSTANDING:
BASIC 8,261,000 8,330,000 8,252,000 8,361,000
==================== =================== ==================== ===================
DILUTED 8,907,000 8,330,000 8,252,000 8,361,000
==================== =================== ==================== ===================
See notes to the consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended
June 30,
---------------------------------------------
2004 2003
---------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,745,000) $(2,191,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,658,000 1,099,000
Compensation expense 328,000 -
Gain on early extinguishment of notes payable (82,000) -
Amortization of premium on convertible notes (25,000) -
Amortization of deferred financing fees 106,000 76,000
Provision for losses on receivables 7,000 (29,000)
Loss on disposition of property and equipment 10,000 1,000
Deferred income taxes (1,132,000) (1,430,000)
Changes in operating assets and liabilities:
Receivables (119,000) 372,000
Inventories (4,147,000) (3,772,000)
Prepaid expenses and other assets 1,307,000 (471,000)
Accounts payable 1,330,000 (276,000)
Income taxes payable (1,430,000) (555,000)
Accrued expenses and other current liabilities (3,289,000) (869,000)
Deferred rent 84,000 (77,000)
Deferred gain on sale-leaseback (27,000) (27,000)
---------------------- ----------------------
Net cash used in operating activities (7,166,000) (8,149,000)
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (688,000) (513,000)
Acquisition of The Walking Company, net of
cash acquired (1,577,000) -
---------------------- ----------------------
Net cash used in investing activities (2,265,000) (513,000)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit
agreement 862,000 5,001,000
Repayment of redeemable convertible notes
and rights (363,000) -
Repurchase of common stock - (275,000)
Exercise of stock options 16,000 -
Repayment of capital lease obligations (62,000) -
---------------------- ----------------------
Net cash provided by financing
activities 453,000 4,726,000
---------------------- ----------------------
NET DECREASE IN CASH (8,978,000) (3,936,000)
CASH, BEGINNING OF PERIOD 10,503,000 6,194,000
---------------------- ----------------------
CASH, END OF PERIOD $ 1,525,000 $ 2,258,000
====================== ======================
See notes to the consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended
June 30,
---------------------------------------------
2004 2003
---------------------- ----------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 205,000 $ 166,000
Income taxes $ 1,493,000 $ 606,000
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES:
ACQUISITION OF THE WALKING COMPANY:
Working capital, other than cash $ 17,000
Properties 7,142,000
Redeemable convertible notes and rights
assumed (4,998,000)
Notes payable (584,000)
----------------------
Net cash effect due to acquisition of net
assets of The Walking Company $ 1,577,000
======================
REDEMPTION OF NOTES AND RIGHTS:
Redeemable convertible notes and rights
assumed $ 4,998,000
Compensation expense 328,000
Accrued interest 75,000
Amortization of premium on convertible
notes (25,000)
Gain on early extinguishment of debt (82,000)
Issuance of 993,146 shares of common stock (4,931,000)
----------------------
Net cash effect due to redemption of notes
and rights $ 363,000
======================
OTHER:
Purchase of property under capital lease $ 367,000
======================
See Notes to 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.
The interim financial statements for the six months ended June 30,
2004 contain the results of operations since March 3, 2004, of the
Company's acquisition of primarily all the assets of The Walking Company.
For a complete description of the acquisition see Note 2 below.
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 six-month period ended June 30, 2004
are not necessarily indicative of the results that may be expected for the
year ending December 31, 2004. 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, 2003.
Note 2. The Walking Company Acquisition
On March 3, 2004 (the "acquisition date"), the Company acquired
substantially all of the assets and assumed certain liabilities of The
Walking Company (the "acquisition"), pursuant to an asset purchase
agreement for a purchase price of approximately $22 million (subject to
adjustment). The Walking Company is a leading independent specialty
retailer of high quality, technically designed comfort walk wear and
accessories. The Walking Company had total annual sales of approximately
$74 million in 2003 and had been operating under the protection of the U.S.
Bankruptcy Court since July 2003. The Company was selected as the highest
and best bidder for The Walking Company assets at a U.S. Bankruptcy Court
ordered auction, which was confirmed on March 2, 2004.
Under the terms of the asset purchase agreement, a subsidiary of
the Company acquired substantially all of the assets of The Walking Company
including, but not limited to, the inventory and fixed assets of 72 stores
located in 28 states and trademarks, all of which will be used by the
subsidiary to continue the business under the name "The Walking Company"
("TWC"). As a result of the acquisition, the Company believes operational
synergies will be obtained leading to future growth and profitability. The
transaction was accounted for under the purchase method of accounting, and
accordingly the results of operations of TWC have been consolidated in the
Company financial statements since the acquisition date.
The purchase price consisted of approximately $1.7 million in
cash, $5.6 million in issuance of notes and rights (See Note 3), $14.7
million of assumption of accounts payable, accrued expenses and other
liabilities (including acquisition related costs of $1.9 million.) The
Company funded the cash portion of the purchase price by drawing upon
existing and new lines of credit, and from available cash.
The total purchase consideration has been allocated to the assets
and liabilities acquired based on their respective estimated fair values
as summarized below. The purchase price allocation is subject to change
and will be finalized upon review and refinement of certain estimates.
Cash and cash equivalents $ 123,000
Inventories 12,754,000
Other current assets 1,944,000
Property, plant and equipment 7,142,000
------------
Total assets acquired $ 21,963,000
------------
Current and other liabilities $ 14,681,000
Notes payable and rights issued 5,582,000
------------
Total liabilities assumed $ 20,263,000
------------
Net assets acquired over liabilities $ 1,700,000
============
The following table presents unaudited pro forma results of the
combined operations for the six months ended June 30, 2004 and 2003,
respectively, as if the acquisition had occurred as of the beginning of
such periods rather than as of the acquisition date. The pro forma
information presented below is for illustrative purposes only and is not
indicative of results that would have been achieved or results which may
be achieved in the future:
Six Months ended
June 30,
2004 2003
----------------- ---------------
Net sales $ 71,242,000 $ 70,311,000
Net loss (2,296,000) (3,452,000)
Net loss per common share:
Basic and diluted $ (0.28) $ (0.41)
The pro forma results have been prepared based on available information, using
assumptions that the Company's management believes are reasonable and include
no significant non-recurring items. The results above are not necessarily
indicative of the results that may be achieved in the future. These results
also do not reflect any adjustments for the effect of certain operating
synergies or expected cost reductions that the Company may realize as a result
of the acquisition. No assurances can be given that the amount of financial
benefits, if any, may actually be realized as the result of the acquisition.
NOTE 3. Debt
Short-term Borrowings
In October 2001, the Company entered into a credit facility with Wells
Fargo Retail Finance, which was most recently amended in April 2004 (the
"Amended Credit Agreement"). The Amended Credit Agreement, which expires in
March 2007, provides for a total commitment of $28,000,000 with the ability for
the Company to issue documentary and standby letters of credit of up to $3
million. The Company's ability to borrow under the facility is determined using
an availability formula based on eligible assets, including inventory and
accounts receivable. The 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. Prior to
the amendment, the most significant of these financial covenants was compliance
with certain pre-defined earnings before interest, income taxes, depreciation
and amortization targets. As amended, the more significant covenants include
compliance with certain pre-defined capital expenditures. For all periods
presented, the Company was in compliance with this and all other covenants. This
credit agreement provides for a performance-pricing structured interest charge,
ranging up to LIBOR plus 1.75% and/or Prime (4.25% at June 30, 2004), which is
based on excess availability levels. As of June 30, 2004 and December 31, 2003,
the Company had $6,006,000 and $0, respectively, outstanding under the Amended
Credit Agreement. Additionally, the Company had $1,736,000 and $966,000,
respectively, of letters of credit outstanding as of June 30, 2004 and December
31, 2003. The letters of credit expire through December 31, 2004.
In addition to the Amended Credit Agreement of the Company, TWC entered
into a separate $17,500,000 three-year revolving credit facility with Wells
Fargo Retail Finance on March 3, 2004. The line is secured by substantially all
assets of TWC and requires daily, weekly and monthly financial reporting as well
as compliance with financial, affirmative and negative covenants. The most
significant of these financial covenants is compliance with certain pre-defined
earnings before interest and depreciation, accounts payable to inventory ratio
covenant and capital expenditures. For all periods presented, TWC was in
compliance with this and all other covenants. This credit agreement provides for
a performance-pricing structured interest charge, ranging up to LIBOR plus 2.75%
and/or Prime plus 0.25% (4.25% at June 30, 2004), which is based on excess
availability levels. As of June 30, 2004, TWC had approximately $1,040,000
outstanding under this credit agreement and $312,000 of outstanding letters of
credit. The letters of credit expire through December 31, 2004.
Long-term Borrowings
In March 2004, in conjunction with the acquisition of The Walking
Company, the Company also entered into a $3 million two-year unsecured revolving
promissory note facility with Israel Discount Bank ("IDB"). This facility bears
interest at IDB prime plus 1% (5.00% at June 30, 2004) and is personally
guarantied by the Chairman of the Company, for which he receives an annual 2.5%
guarantee fee of $75,000. At June 30, 2004, the Company had $1,450,000
outstanding under this facility.
Redeemable Convertible Notes
In conjunction with the acquisition, the Company assumed $3,279,000 of
secured promissory notes and $721,000 of unsecured promissory notes,
respectively, payable to certain former creditors of The Walking Company. The
secured notes are secured by a lien against substantially all the assets of TWC
that is subordinated to the Wells Fargo line of credit. The secured promissory
notes bear interest at 7%, payable quarterly, and principal is due in equal
annual payments of $550,000 at the end of years two through five, with the
balance of $1,079,000 due on March 3, 2010. The secured note holders were also
granted rights to convert the notes into a total of 753,793 shares of common
stock of the Company at a conversion price of $4.35 per share through June 30,
2004. In addition, the holders of the secured notes received a right to sell
("put") 50% of the outstanding principal amount of such notes to the Company at
a 20% discount through June 30, 2004 (the "note put rights"). The unsecured note
holders also were granted rights to convert the notes into a total of 165,748
shares of common stock of the Company at a conversion price of $4.35 per share
through June 30, 2004. In addition, the holders of such unsecured notes received
note put rights to put 100% of the outstanding principal amount of such notes to
the Company at a 20% discount through June 30, 2004.
In order to facilitate the acquisition, the Chairman of the Board and
the Chief Executive Officer of the Company each personally guarantied the
potential obligation of the secured and unsecured note put rights and another
$2,800,000 of other potential obligations in regard to certain administrative
claims. In connection therewith, the Chairman and CEO were given the right to
purchase the secured and unsecured put rights if such put rights were exercised.
The Chairman and the CEO then assigned part of their right to purchase such
rights to certain executive officers and individuals (the "Assigned Group"). In
March 2004, the holders of the $721,000 of unsecured notes exercised the right
to put such notes, which the Assigned Group purchased for $576,000. The Company
recorded $328,000 as compensation expense, which was equal to the difference
between the market value of the Company common stock into which such notes were
convertible and the amount at which the Assigned Group had the right to purchase
such notes. This amount is included in general and administrative expenses in
the accompanying statements of operations.
During the quarter ended June 30, 2004, certain note holders and the
assigned group exercised their rights to convert $2,918,000 in secured notes,
$721,000 in unsecured notes and $64,000 in accrued interest into 851,117 shares
of common stock. The Company offered to redeem the remaining secured notes at a
10% discount instead of the contractual 20% discount. Accordingly, all of the
remaining secured notes were redeemed for a cash payment of 90% of the face
value. As a result of the above transactions the Company recognized an increase
in additional paid in capital of $4,227,000 and a gain on the early
extinguishment of debt of $82,000 which was recorded as other income in the
accompanying statement of operations.
Note Payable
As part of the acquisition of The Walking Company, TWC assumed priority
tax claims totaling approximately $584,000. The Bankruptcy Code requires that
each holder of a priority tax claims will be paid in full with interest at the
rate of six percent per year with annual payments for a period of six years. At
June 30, 2004, $97,000 of the priority tax claim note has been classified as
current and is included in short-term borrowings in the accompanying
consolidated balance sheet.
Note 4. 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 Six Months Ended
June 30, June 30,
-------- --------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss):
As reported $ 1,251,000 $ 559,000 $(1,745,000) $(2,191,000)
Add: Stock-based
employee compensation
expense included in reported net income
(loss), net of related
tax effects..................... 114,000 -- 114,000 --
Deduct: Total stock-based
employee compensation
expense determined
under fair value
method, net of related
tax effects................... (207,000) (199,000) (346,000) (356,000)
----------- ----------- ----------- ------------
Pro forma net income (loss).................... $ 1,158,000 $ 360,000 $(1,977,000) $(2,547,000)
=========== =========== =========== ============
Net income (loss) per
share:
As reported:
Basic.................................... $ 0.15 $ 0.07 $ (0.21) $ (0.26)
Diluted.................................. $ 0.14 $ 0.07 $ (0.21) $ (0.26)
Pro forma:
Basic.................................... $ 0.14 $ 0.04 $ ( 0.24) $ (0.30)
Diluted.................................. $ 0.13 $ 0.04 $ (0.24) $ (0.30)
Antidilutive options........................ 1,317,000 1,727,000 -- --
NOTE 5. 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, 2004, the
Company had repurchased 1,455,152 shares totaling $7,854,000. In July, 2004 the
Company repurchased 74,846 totaling $374,000.
In conjunction with the acquisition of The Walking Company, the Company
issued to certain former creditors of The Walking Company 10% (10,000 shares) of
the outstanding common stock of TWC, the subsidiary of the Company that acquired
such assets (the "minority interest"). The holders of the minority interest were
also provided the right to sell ("put") such shares to TWC for cash totaling
$645,000 through June 30, 2004 (the "stock put rights"). Additionally, these
holders received the right to instead convert the minority interest into 148,276
shares of common stock of the Company at a price of $4.35 per share through June
30, 2004 (the "stock rights"). On April 23, 2004 TWC was merged into a wholly
owned subsidiary of the Company and the former minority holders were entitled to
either a cash redemption or they could exercise their stock put rights. As of
June 30, 2004 $618,000 of the former minority interest converted their shares to
142,029 shares of common stock of the Company. The remaining $27,000 was
redeemed for cash.
In addition, as discussed in Note 3, the Company issued 851,117 shares
related to the conversion of certain debt issued in conjunction with the
acquisition of The Walking Company.
NOTE 6. Segment Information
Since The Walking Company acquisition on March 3, 2004, the Company has
operated its business under two reportable segments: (i) Big Dog Sportswear
business, and (ii) The Walking Company business.
The Big Dog Sportswear business includes the Company's 190 Big Dog
retail stores (primarily located in outlet malls), wholesale and corporate
sales, and its catalog and internet business.
The Walking Company business includes the Company's 73 Walking Company
stores located primarily in leading retail malls.
The accounting policies of the reportable segments are consistent with
the consolidated financial statements of the Company. The Company evaluates
individual store profitability in terms of a store's contribution which is
defined as gross margin less direct selling, occupancy, and certain indirect
selling costs. Below are the results of operations on a segment basis for the
three and six months ended June 30, 2004 (with The Walking Company's results
being reported only for the period from the March 3, 2004 acquisition date):
Big Dog The Walking Total
Sportswear Company
-------------------- ----------------------- ---------------------
Statements of Income:
Three months ended June 30, 2004
Sales $23,117,000 $17,926,000 $ 41,043,000
Gross Profit 13,975,000 9,055,000 23,030,000
Depreciation and Amortization 472,000 171,000 643,000
Interest expense 124,000 159,000 283,000
Provision for income taxes 435,000 332,000 767,000
Net Income 709,000 542,000 1,251,000
Six months ended June 30, 2004
Sales $39,743,000 $23,181,000 $ 62,924,000
Gross Profit 22,711,000 11,541,000 34,252,000
Depreciation and Amortization 875,000 783,000 1,658,000
Interest expense 195,000 212,000 407,000
Provision (Benefit) for income taxes (1,132,000) 63,000 (1,069,000)
Net Income (Loss) (1,848,000) 103,000 (1,745,000)
Balance Sheet:
Total assets $37,410,000 $21,399,000 $ 58,809,000
NOTE 7. Recently Issued Accounting Standards
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities - an Interpretation of ARB No. 51, Consolidated Financial
Statements." This interpretation addresses consolidation by business enterprises
of entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. Variable interest entities are required to be
consolidated by their primary beneficiaries if they do not effectively disperse
risks among the parties involved. The primary beneficiary of a variable interest
entity is the party that absorbs a majority of the entity's expected losses or
receives a majority of its expected residual returns. In December 2003, the FASB
amended FIN 46, now known as FIN 46 Revised ("FIN 46R"). The requirements of FIN
46R are effective no later than the end of the first reporting period that ends
after March 15, 2004. A company that has applied FIN 46 to an entity prior to
the effective date of FIN 46R shall either continue to apply FIN 46 until the
effective date of FIN 46R or apply FIN 46R at an earlier date. The adoption of
this interpretation did not have an impact on the Company's consolidated
financial statements.
NOTE 8. Closure of Wholesale Division
In June 2004, the Company closed its wholesale division in order to
focus its resources on its core retailing businesses. Wholesale accounted for
approximately 2% of the Company's revenue in 2003. The closure is not expected
to have a material 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, 2003. 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, 2003 filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2004 and 2003
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 increased to $41.0 million for the three months ended June
30, 2004 from $24.2 million for the same period in 2003, an increase of $16.8
million, or 69.4%. The increase was primarily related to $17.9 million in sales
revenue due to the acquisition of The Walking Company on March 3, 2004. The
increase was offset by $0.3 million attributable to a 1.2% decrease in
comparable store sales for the period, $0.2 million attributable to a decrease
in sales for stores not yet qualifying as comparable stores, which includes the
closure of unprofitable stores netted against new stores opened in the period,
and $0.6 million attributable to a decrease in the Company's wholesale business.
The decrease in comparable store sales is primarily related to an overall
decrease in consumer traffic in our stores and outlet locations. In June 2004,
the Company closed its wholesale division in order to focus its resources on its
core retailing businesses. Wholesale accounted for approximately 2% of the
Company's revenue in 2003.
GROSS PROFIT. Gross profit increased to $23.0 million for the three
months ended June 30, 2004 from $14.2 million for the same period in 2003, an
increase of $8.8 million, or 62.0%. As a percentage of net sales, gross profit
decreased to 56.1% in the three months ended June 30, 2004 from 58.7% for the
same period in 2003. The decrease was attributable to the addition of The
Walking Company store sales. Such decrease in margin is expected to continue for
future periods, as The Walking Company margin contribution is generally lower
than the Company's historical results. The Walking Company gross margin was
50.5% for the period ended June 30, 2004 as compared to Big Dogs' contribution
of 60.5%. The Big Dogs' gross profit for the three month period ended June 30,
2004 increased to 60.5% from 58.7% in the same period in 2003. The 1.8% increase
was primarily due to a shift from promotional sales to higher margined sales
such as T-shirts. Gross profit may not be comparable to those of other
retailers, since some retailers include distribution costs and store occupancy
costs in costs of goods sold, while we exclude them from gross margin, including
them instead in selling, marketing and distribution expenses.
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 $18.9 million in the three months ended June 30, 2004 from $11.9
million for the same period for 2003, an increase of $7.0 million, or 58.8%. The
$7.0 million increase is primarily due to $7.4 million of selling, marketing and
distribution expenses related to The Walking Company. As a percentage of net
sales, these expenses decreased to 46.0% in the three months ended June 30, 2004
from 49.1% in the same period in 2003, a decrease of 3.1%. The decrease as a
percentage of sales is primarily related to cost reductions resulting from the
net closing of ten stores since June 30, 2003 and synergies created as a result
of the acquisition of The Walking Company. Due to the acquisition, this decrease
in expenses as a percentage of revenue as compared to last years percentage, is
expected to continue in future periods.
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 $1.9
million for the three months ended June 30, 2004 from $1.3 million for the same
period in 2003. The increase is directly attributable to The Walking Company
acquisition. As a percentage of net sales, these expenses decreased to 4.7% in
the three months ended June 30, 2004 from 5.5% for the same period in 2003.
OTHER INCOME. Other income of $0.1 million in 2004 is the discount from
early debt extinguishment of the redeemable convertible notes related to The
Walking Company acquisition.
INTEREST EXPENSE. Interest expense increased to $0.3 million for the
three month period ended June 30, 2004 from $0.1 million for the same period in
2003. The increase in interest expense is due to higher average outstanding
borrowings. Such increase in interest expense is expected to increase in future
periods as a result of The Walking Company acquisition.
INCOME TAXES. The Company recorded an income tax expense at its
historical effective income tax rate of 38.0%.
Six Months Ended June 30, 2004 and 2003
NET SALES. Net sales increased to $62.9 million for the six months
ended June 30, 2004 from $39.6 million for the same period in 2003, an increase
of $23.3 million, or 58.8%. The increase was primarily related to the following:
$23.2 million of sales revenue was attributable to the acquisition of The
Walking Company on March 3, 2004 and $1.0 million is attributable to an increase
in comparable store sales of 2.8%. The increase was offset by $0.3 million
attributable to a decrease in sales for stores not yet qualifying as comparable
stores, which includes the closure of unprofitable stores netted against new
stores opened in the period, $0.6 million attributable to a decrease in the
Company's wholesale business, and $0.1 million attributable to a decrease in the
Company's mail order business. The increase in comparable store sales is
primarily related to a first quarter increase in consumer traffic in our stores
and outlet locations. In June 2004, the Company closed its wholesale division in
order to focus its resources on its core retailing businesses. Wholesale
accounted for approximately 2% of the Company's revenue in 2003.
GROSS PROFIT. Gross profit increased to $34.3 million for the six
months ended June 30, 2004 from $22.3 million for the same period in 2003, an
increase of $12.0 million, or 53.8%. As a percentage of net sales, gross profit
decreased to 54.4% in the six months ended June 30, 2004 from 56.4% for the same
period in 2003. The decrease was attributable to the addition of The Walking
Company store sales since the acquisition date of March 3, 2004. Such decrease
in margin is expected to continue for future periods, as The Walking Company
margin contribution is generally lower than the Company's historical results.
The Walking Company gross margin was 49.8% for the period ended June 30, 2004 as
compared to Big Dogs' contribution of 57.1%. The Big Dogs' gross profit for the
six month period ended June 30, 2004 increased to 57.1% from 56.4% in the same
period in 2003. The 0.7% increase was primarily due to a shift from promotional
sales to higher margined sales such as T-shirts. Gross profit may not be
comparable to those of other retailers, since some retailers include
distribution costs and store occupancy costs in costs of goods sold, while we
exclude them from gross margin, including them instead in selling, marketing and
distribution expenses.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses increased to $33.0 million in the six months ended June
30, 2004 from $23.2 million for the same period for 2003, an increase of $9.8
million, or 42.2%. The $9.8 million increase is primarily due to $10.1 million
related to The Walking Company. As a percentage of net sales, these expenses
decreased to 52.5% in the six months ended June 30, 2004 from 58.6% in the same
period in 2003, a decrease of 6.1%. The decrease as a percentage of sales is
primarily related to cost reductions related to store closures and synergies
created as a result of the acquisition of The Walking Company. Due to the
acquisition, this decrease in expenses as a percentage of revenue, as compared
to last years percentage, is expected to continue in future periods.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $3.7 million for the six months ended June 30, 2004 from
$2.5 million for the same period in 2003. The increase is directly attributable
to The Walking Company acquisition. As a percentage of net sales, these expenses
decreased to 5.9% in the six months ended June 30, 2004 from 6.4% for the same
period in 2003.
OTHER INCOME. Other income of $0.1 million in 2004 is the discount from
early debt extinguishment of the redeemable convertible notes related to The
Walking Company acquisition.
INTEREST EXPENSE. Interest expense increased to $0.4 million for the
six month period ended June 30, 2004 from $0.2 million for the same period in
2003. The increase in interest expense is due to higher average outstanding
borrowings. Such increase in interest expense is expected to increase in future
periods as a result of The Walking Company acquisition.
INCOME TAXES. The Company recorded an income tax benefit at its
historical effective income tax rate of 38.0%. The Company believes it will
fully realize this benefit due to projected seasonal net income in the third and
fourth quarters as discussed in "Seasonality" below.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2004, the Company's primary uses
of cash were for the acquisition of The Walking Company, merchandise
inventories, income tax payments, and general operating activity. The Company
satisfied its cash requirements from existing cash balances, short-term
borrowings under its line of credit agreements and other borrowings.
Cash used in operating activities was $7.2 million and $8.1 million for
the six months ended June 30, 2004 and 2003, respectively. The decrease in cash
used in operating activities is principally due to a decrease in the net loss
for the period, operating cash requirements, and income taxes.
Cash used in investing activities was $2.3 million and $0.5 million for
the six months June 30, 2004 and 2003, respectively. Of the cash used in
investing activities in 2004, $1.6 million relates to the acquisition of the
Walking Company.
Cash provided by financing activities was $0.5 million in the six
months ended June 30, 2004 compared to $4.7 million in the same period in 2003.
In the six months ended June 30, 2004 and 2003, the Company had short term
borrowings of $7.0 million at the end of each period in 2004 and 2003 under its
borrowing agreement. The decrease in cash provided by financing activities
relates to the Company borrowing more cash in the first six months of 2003 than
in the first six months of 2004.
In October 2001, the Company entered into a credit facility with Wells
Fargo Retail Finance, which was most recently amended in April 2004 (the
"Amended Credit Agreement"). The Amended Credit Agreement, which expires in
March 2007, provides for a total commitment of $28,000,000 with the ability for
the Company to issue documentary and standby letters of credit of up to $3
million. The Company's ability to borrow under the facility is determined using
an availability formula based on eligible assets, including inventory and
accounts receivable. The 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. Prior to
the amendment, the most significant of these financial covenants was compliance
with certain pre-defined earnings before interest, income taxes, depreciation
and amortization targets. As amended, the more significant covenants include
compliance with certain pre-defined capital expenditures. For all periods
presented, the Company was in compliance with this and all other covenants. This
credit agreement provides for a performance-pricing structured interest charge,
ranging up to LIBOR plus 1.75% and/or Prime (4.25% at June 30, 2004), which is
based on excess availability levels. As of June 30, 2004 and December 31, 2003,
the Company had $6,006,000 and $0, respectively, outstanding under the Amended
Credit Agreement. Additionally, the Company had $1,736,000 and $966,000,
respectively, of letters of credit outstanding as of June 30, 2004 and December
31, 2003. The letters of credit expire through December 31, 2004.
In addition to the Amended Credit Agreement of the Company, TWC entered
into a separate $17,500,000 three-year revolving credit facility with Wells
Fargo Retail Finance on March 3, 2004. The line is secured by substantially all
assets of TWC and requires daily, weekly and monthly financial reporting as well
as compliance with financial, affirmative and negative covenants. The most
significant of these financial covenants is compliance with certain pre-defined
earnings before interest and depreciation, accounts payable to inventory ratio
covenant and capital expenditures. For all periods presented, TWC was in
compliance with this and all other covenants. This credit agreement provides for
a performance-pricing structured interest charge, ranging up to LIBOR plus 2.75%
and/or Prime plus 0.25% (4.25% at June 30, 2004), which is based on excess
availability levels. As of June 30, 2004, TWC had approximately $1,040,000
outstanding under this credit agreement and $312,000 of outstanding letters of
credit. The letters of credit expire through December 31, 2004.
In March 2004, in conjunction with the acquisition of The Walking
Company, the Company also entered into a $3 million two-year unsecured revolving
promissory note facility with Israel Discount Bank ("IDB"). This facility bears
interest at IDB prime plus 1% (5.00% at June 30, 2004) and is personally
guarantied by the Chairman of the Company, for which he receives an annual 2.5%
guarantee fee of $75,000. At June 30, 2004, the Company had $1,450,000
outstanding under this facility.
In conjunction with the acquisition, the Company assumed $3,279,000 of
secured promissory notes and $721,000 of unsecured promissory notes,
respectively, payable to certain former creditors of The Walking Company. The
secured notes are secured by a lien against substantially all the assets of TWC
that is subordinated to the Wells Fargo line of credit. The secured promissory
notes bear interest at 7%, payable quarterly, and principal is due in equal
annual payments of $550,000 at the end of years two through five, with the
balance of $1,079,000 due on March 3, 2010. The secured note holders were also
granted rights to convert the notes into a total of 753,793 shares of common
stock of the Company at a conversion price of $4.35 per share through June 30,
2004. In addition, the holders of the secured notes received a right to sell
("put") 50% of the outstanding principal amount of such notes to the Company at
a 20% discount through June 30, 2004 (the "note put rights"). The unsecured note
holders also were granted rights to convert the notes into a total of 165,748
shares of common stock of the Company at a conversion price of $4.35 per share
through June 30, 2004. In addition, the holders of such unsecured notes received
note put rights to put 100% of the outstanding principal amount of such notes to
the Company at a 20% discount through June 30, 2004.
In order to facilitate the acquisition, the Chairman of the Board and
the Chief Executive Officer of the Company each personally guarantied the
potential obligation of the secured and unsecured note put rights and another
$2,800,000 of other potential obligations in regard to certain administrative
claims. In connection therewith, the Chairman and CEO were given the right to
purchase the secured and unsecured put rights if such put rights were exercised.
The Chairman and the CEO then assigned part of their right to purchase such
rights to certain executive officers and individuals (the "Assigned Group"). In
March 2004, the holders of the $721,000 of unsecured notes exercised the right
to put such notes, which the Assigned Group purchased for $576,000. The Company
recorded $328,000 as compensation expense, which was equal to the difference
between the market value of the Company common stock into which such notes were
convertible and the amount at which the Assigned Group had the right to purchase
such notes. This amount is included in general and administrative expenses in
the accompanying statements of operations.
During the quarter ended June 30, 2004, certain note holders and the
assigned group exercised their rights to convert $2,918,000 in secured notes,
$721,000 in unsecured notes and $64,000 in accrued interest into 851,117 shares
of common stock. The Company offered to redeem the remaining secured notes at a
10% discount instead of the contractual 20% discount. Accordingly, all of the
remaining secured notes were redeemed for a cash payment of 90% of the face
value. As a result of the above transactions the Company recognized an increase
in additional paid in capital of $4,227,000 and a gain on the early
extinguishment of debt of $82,000 which was recorded as other income in the
accompanying statement of operations.
As part of the acquisition of The Walking Company, TWC assumed priority
tax claims totaling approximately $584,000. The Bankruptcy Code requires that
each holder of a priority tax claims will be paid in full with interest at the
rate of six percent per year with annual payments for a period of six years. At
June 30, 2004, $97,000 of the priority tax claim note has been classified as
current and is included in short-term borrowings in the accompanying
consolidated balance sheet.
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,
2003.
COMMITMENTS AND OBLIGATIONS
As of June 30, 2004, we had the following obligations, net of interest:
Amounts of Commitment Expiration per Period
-----------------------------------------------------------------------------------------------
Total Amounts Less than 1 1 to 3 4 to 5 Over 5
Committed year years years years
------------------- ------------------- --------------- ---------------- -------------
Debt:
Revolving lines of
credit $8,496,000 $7,046,000 $ 1,450,000 $ - $ -
Priority tax claims 584,000 97,000 97,000 97,000 293,000
Contractual
Obligations:
Operating leases 83,473,000 22,655,000 44,506,000 11,353,000 4,959,000
Capital leases 516,000 165,000 351,000 - -
Other Commercial
Commitments:
Letters of credit 1,683,000 1,683,000 - - -
Standby letters of
credit 365,000 365,000 - - -
--------------------- ----------------- ---------------- ----------------- --------------
Total Commitments $95,117,000 $32,011,000 $46,404,000 $11,450,000 $5,252,000
--------------------- ----------------- ---------------- ----------------- --------------
SEASONALITY
The Company believes its seasonality is somewhat different than many
apparel retailers since a significant number of the Company's Big Dog Sportswear
stores are located in tourist areas and outdoor malls that have different
visitation patterns than urban and suburban retail centers. The Company believes
that the seasonality of The Walking Company stores will more closely resemble
traditional retailers. 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 the first half of the year 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. In the normal course of business, the financial position
and results of operations of the Company are subject to market risk associated
with interest rate movements on borrowings. The Company's credit facilities
contain a performance-pricing structured-interest charge, ranging up to LIBOR
plus 2.75% and/or Prime plus 0.25% based on excess availability levels. The
Company's market risk on interest rate movements will increase based on higher
borrowing levels. A 1.0% increase in interest rates would have resulted in
additional interest expense of approximately $102,000 for the six months ended
June 30, 2004. 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, 2004, 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 in making known 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, USE OF PROCEEDS AND ISSUER PURCHASES
OF EQUITY SECURITIES
In connection with the March 3, 2004 acquisition of the assets
of The Walking Company, former creditors of The Walking
Company shares of common stock of TWC, received rights to
convert certain promissory note issued by TWC into common
stock of the Company, and rights to convert such TWC stock
into shares of common stock of the Company. See ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES,
above. Such securities were issued without registration under
the Securities Act of 1933 pursuant the exemption under
Section 1145(a) of the federal Bankruptcy Code. As of June 30,
2004, 993,146 shares were issued as a result of these rights.
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 4, 2004.
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 I Directors Skip R. Coomber, III
and Steven C. Good, 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, 2004.
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
Not applicable
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
32.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On June 28, 2004 the Company filed an amended Form 8-K
to include the required financial statements and pro
forma financial information related to the acquisition
of The Walking Company.
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 12, 2004 /s/ ANDREW D. FESHBACH
----------------------
Andrew D. Feshbach
President and Chief Executive Officer
(Principal Executive Officer)
August 12, 2004 /s/ ROBERTA J. MORRIS
---------------------
Roberta J. Morris
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Chief Executive Officer Certification
I, Andrew D. Feshbach, President and Chief Executive
Officer of Big Dog Holdings, Inc., certify that:
1. I have reviewed this report on Form 10-Q of Big Dog Holdings, Inc., (the
"Registrant");
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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15 and 15d-15e) for the Registrant and have:
a. designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our supervision
to ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this report b our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c. disclosed in this report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's most
recent fiscal quarter (the Registrant fourth quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the Registrant's internal control over financial
reporting; and
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or
operation of internal controls over a financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; 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 over financial reporting.
Dated: August 12, 2004
By /s/ ANDREW D. FESHBACH
-------------------------
Andrew D. Feshbach
President and Chief Executive Officer
Chief Financial Officer Certification
I, Roberta J. Morris, Chief Financial Officer of Big Dog Holdings, Inc.,
certify that:
1. I have reviewed this report on Form 10-Q of Big Dog Holdings, Inc., (the
"Registrant");
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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15 and 15d-15e) for the Registrant and have:
a. designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our supervision
to ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report b our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c. disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent fiscal quarter (the Registrant fourth quarter in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over
financial reporting; and
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or
operation of internal controls over a financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; 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 over financial reporting.
Dated: August 12, 2004
By /s/ROBERTA J. MORRIS
-----------------------
Roberta J. Morris
Chief Financial Officer