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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, 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 November 12, 2004 was 9,173,032 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
September 30, 2004 and December 31, 2003....................3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and nine months ended September 30, 2004 and 2003.... 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 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........................... 20
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)
September 30, December 31,
2004 2003
----------------------- --------------------------
ASSETS (Notes 2 and 3)
CURRENT ASSETS:
Cash and cash equivalents $2,330,000 $ 10,503,000
Receivables, net 403,000 116,000
Inventories, net 51,791,000 24,752,000
Prepaid expenses and other current assets 1,214,000 789,000
Deferred income taxes 1,287,000 875,000
----------------------- --------------------------
Total current assets 57,025,000 37,035,000
PROPERTY AND EQUIPMENT, Net 10,520,000 4,144,000
INTANGIBLE ASSETS, Net 172,000 211,000
DEFERRED INCOME TAXES 1,292,000 946,000
OTHER ASSETS 420,000 246,000
----------------------- --------------------------
TOTAL $ 69,429,000 $ 42,582,000
======================= ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
(Notes 2 and 3)
Short-term borrowings $ 15,628,000 $ -
Current portion of long-term debt 272,000 -
Accounts payable 7,720,000 1,932,000
Income taxes payable 452,000 1,513,000
Accrued expenses and other current liabilities 4,963,000 4,016,000
----------------------- --------------------------
Total current liabilities 29,035,000 7,461,000
NOTE PAYABLE 530,000 -
CAPITAL LEASE OBLIGATIONS 298,000 -
DEFERRED RENT 953,000 606,000
DEFERRED GAIN ON SALE-LEASEBACK 261,000 301,000
----------------------- --------------------------
Total liabilities 31,077,000 8,368,000
---------------------- ----------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 3,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.01 par value, 30,000,000 shares authorized,
10,703,030 and 9,698,284 issued at September 30, 2004 and
December 31, 2003, respectively 107,000 97,000
Additional paid-in capital 25,473,000 20,510,000
Retained earnings 21,000,000 21,461,000
Treasury stock, 1,529,998 and 1,455,152 shares at September
30, 2004 and December 31, 2003, respectively (8,228,000) (7,854,000)
----------------------- --------------------------
Total stockholders' equity 38,352,000 34,214,000
----------------------- --------------------------
TOTAL $ 69,429,000 $ 42,582,000
======================= ==========================
See notes to the consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------------------------- --------------------------------------------
2004 2003 2004 2003
-------------------- ------------------- -------------------- -------------------
NET SALES $42,695,000 $29,487,000 $105,619,000 $69,049,000
COST OF GOODS SOLD 19,262,000 12,658,000 47,934,000 29,899,000
-------------------- ------------------- -------------------- -------------------
GROSS PROFIT 23,433,000 16,829,000 57,685,000 39,150,000
-------------------- ------------------- -------------------- -------------------
OPERATING EXPENSES:
Selling, marketing and
distribution 19,363,000 12,390,000 52,371,000 35,584,000
General and administrative 1,811,000 1,189,000 5,544,000 3,723,000
-------------------- ------------------- -------------------- -------------------
Total operating expenses 21,174,000 13,579,000 57,915,000 39,307,000
-------------------- ------------------- -------------------- -------------------
INCOME (LOSS) FROM OPERATIONS 2,259,000 3,250,000 (230,000) (157,000)
OTHER INCOME - - (82,000) (1,000)
INTEREST EXPENSE 187,000 75,000 594,000 240,000
-------------------- ------------------- -------------------- -------------------
INCOME (LOSS) BEFORE BENEFIT FOR
INCOME TAXES 2,072,000 3,175,000 (742,000) (396,000)
PROVISION (BENEFIT) FOR INCOME
TAXES 788,000 1,228,000 (281,000) (151,000)
-------------------- ------------------- -------------------- -------------------
NET INCOME (LOSS) $ 1,284,000 $ 1,947,000 $ (461,000) $ (245,000)
==================== =================== ==================== ===================
NET INCOME (LOSS) PER SHARE:
BASIC $ 0.14 $ 0.24 $ (0.05) $ (0.03)
==================== =================== ==================== ===================
DILUTED $ 0.13 $ 0.24 $ (0.05) $ (0.03)
==================== =================== ==================== ===================
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 9,189,000 8,264,000 8,568,000 8,328,000
==================== =================== ==================== ===================
DILUTED 9,633,000 8,265,000 8,568,000 8,328,000
==================== =================== ==================== ===================
See notes to the consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended
September 30,
------------------------------------------
2004 2003
--------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (461,000) $ (245,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,672,000 1,613,000
Compensation expense 328,000 -
Gain on early extinguishment of notes payable (82,000) -
Amortization of deferred financing fees 192,000 114,000
Provision for losses on receivables 94,000 (24,000)
Loss on disposition of property and equipment 51,000 3,000
Deferred income taxes (758,000) 32,000
Changes in operating assets and liabilities:
Receivables (380,000) 226,000
Inventories (14,285,000) (8,511,000)
Prepaid expenses and other assets 1,215,000 (781,000)
Accounts payable 3,995,000 2,462,000
Income taxes payable (1,061,000) (555,000)
Accrued expenses and other current liabilities (4,391,000) (1,580,000)
Deferred rent 347,000 (66,000)
Deferred gain on sale-leaseback (40,000) (40,000)
---------------------- ----------------------
Net cash used in operating activities (12,564,000) (7,352,000)
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,149,000) (733,000)
Acquisition of The Walking Company, net of cash acquired (1,577,000) -
---------------------- ----------------------
Net cash used in investing activities (2,726,000) (733,000)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement 7,994,000 2,873,000
Repayment of redeemable convertible notes and rights (363,000) -
Repurchase of common stock (374,000) (406,000)
Exercise of stock options 42,000 -
Repayment of capital lease obligations (182,000) -
---------------------- ----------------------
Net cash provided by financing activities 7,117,000 2,467,000
---------------------- ----------------------
NET DECREASE IN CASH (8,173,000) (5,618,000)
CASH, BEGINNING OF PERIOD 10,503,000 6,194,000
---------------------- ----------------------
CASH, END OF PERIOD $ 2,330,000 $ 576,000
====================== ======================
See notes to the consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended
September 30,
-----------------------------------------------
2004 2003
---------------------- ----------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 417,000 $ 239,000
Income taxes $ 1,539,000 $ 373,000
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES:
ACQUISITION OF THE WALKING COMPANY:
Working capital, other than cash $(327,000)
Properties 7,583,000
Redeemable convertible notes and rights assumed (4,998,000)
Notes payable (681,000)
----------------------
Net cash effect due to acquisition of net assets of The Walking $ 1,577,000
Company ======================
REDEMPTION OF NOTES AND RIGHTS:
Redeemable convertible notes and rights assumed $ 4,998,000
Expiration of warrants 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:
Capital leases $ 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 nine months ended
September 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 nine-month period ended September 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 footwear 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"). 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, $5.7 million in issuance of notes and rights, $15.0 million of
assumption of accounts payable, accrued expenses and other liabilities
(including acquisition related costs of $2.2 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 and
completion of valuation and appraisals.
Cash and cash equivalents. $ 123,000
Inventories 12,754,000
Other current assets 1,944,000
Property, plant and equipment 7,583,000
------------
Total assets acquired $ 22,404,000
------------
Current and other liabilities $ 15,025,000
Notes payable and rights issued 5,679,000
------------
Total liabilities assumed $ 20,704,000
------------
Net assets acquired over liabilities $ 1,700,000
============
The following table presents unaudited pro forma results of the
combined operations for the nine months ended September 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.
Nine Months ended
September 30,
2004 2003
----------------------- ------------------------
Net sales $113,938,000 $115,140,000
Net loss (1,012,000) (2,135,000)
Net loss per common share:
Basic and diluted $ (0.12) $ (0.26)
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 do not purport to represent the
actual financial position or results of operations that would have occurred if
the acquisition had occurred on the dates specified. 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 August 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. 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%
(4.50% at September 30, 2004), which is based on excess availability levels. As
of September 30, 2004 and December 31, 2003, the Company had $11,797,000 and $0,
respectively, outstanding under the Amended Credit Agreement. Additionally, the
Company had $1,263,000 and $966,000, respectively, of letters of credit
outstanding as of September 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%
(5.00% at September 30, 2004), which is based on excess availability levels. As
of September 30, 2004, TWC had approximately $3,831,000 outstanding under this
credit agreement and $85,000 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% and is personally guarantied by the Chairman of
the Company, for which he received an annual 2.5% guarantee fee of $75,000. At
September 30, 2004, the Company had no balance 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 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 second quarter, certain note holders 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. As an inducement to
cash out, 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 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 $627,000. 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
September 30, 2004, $97,000 of the priority tax claim note has been classified
as current and is included in current portion of long-term debt 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 Nine Months Ended
September 30, September 30,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss):
As reported $ 1,284,000 $ 1,947,000 $(461,000) $(245,000)
Add:
Stock-based employee
compensation expense included in
reported net income
(loss), net of related
tax effects........................ -- -- 114,000 --
Deduct: Total stock-
based employee
compensation expense
determined under fair
value method, net of
related tax effects................ (138,000) (133,000) (482,000) (475,000)
---------- ----------- ----------- ------------
Pro forma $ 1,146,000 $ 1,814,000 $ (829,000) $ (720,000)
=========== =========== =========== ============
Net income (loss) per share:
As reported:
Basic................................. $ 0.14 $ 0.24 $ (0.05) $ (0.03)
Diluted............................... $ 0.13 $ 0.24 $ (0.05) $ (0.03)
Pro forma:
Basic................................. $ 0.13 $ 0.22 $ (0.10) $ (0.09)
Diluted............................... $ 0.12 $ 0.22 $ (0.10) $ (0.09)
Antidilutive options..................... 1,518,000 1,719,000 -- --
NOTE 5. Stockholder's Equity
In March 1998, the Company announced that it's Board
authorized the repurchase of up to $10,000,000 of common stock. As of
September 30, 2004, the Company had repurchased 1,529,998 shares totaling
$8,228,000.
In conjunction with the acquisition, 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 September 30, 2004 $618,000 of the minority interest had
been converted to 142,029 shares of common stock. 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 2004, the Company
has operated its business reportable segments: (i) Big Dog Sportswear
business and (ii) The Walking Company business.
The Big Dog Sportswear business includes the Company's 188 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 nine months ended September 30, 2004 (with The Walking Company's
results being reported only for the period from the March 3, 2004 of
acquisition date):
Big Dog The Walking
Sportswear Company Total
-------------------- -------------------- ---------------------
Statements of Income:
Three months ended September 30, 2004
Sales $26,688,000 $16,007,000 $ 42,695,000
Gross Margin 15,472,000 7,961,000 23,433,000
Depreciation and Amortization 509,000 505,000 1,014,000
Interest expense 99,000 88,000 187,000
Provision for income taxes 898,000 (110,000) 788,000
Net Income 1,465,000 (181,000) 1,284,000
Nine months ended September 30, 2004
Sales $66,431,000 $39,188,000 $105,619,000
Gross Margin 38,183,000 19,502,000 57,685,000
Depreciation and Amortization 1,384,000 1,288,000 2,672,000
Interest expense 294,000 300,000 594,000
(Benefit) Provision for income taxes (234,000) (47,000) (281,000)
Net Income (383,000) (78,000) (461,000)
Balance Sheet:
Total assets $44,777,000 $24,652,000 $ 69,429,000
NOTE 7. Recently Issued Accounting Standards
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The adoption of this statement did not have an impact on the Company's
consolidated financial statements.
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.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. In accordance with the standard,
financial instruments that embody obligations for the issuer are required to be
classified as liabilities. SFAS No. 150 will be effective for financial
instruments entered into or modified after May 31, 2003 and otherwise will be
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of this statement did not have an 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 September 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 $42.7 million for the three months ended
September 30, 2004 from $29.5 million for the same period in 2003, an increase
of $13.2 million, or 44.8%. The increase was primarily related to $16.0 million
in sales from the acquisition of The Walking Company on March 3, 2004. The
increase was offset by $1.9 million attributable to a 7.0% decrease in
comparable store sales for the period, $0.4 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 $0.5 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. The Company
closed its wholesale division in the second quarter of 2004, which accounted for
2% of revenues in 2003.
GROSS PROFIT. Gross profit increased to $23.4 million for the three
months ended September 30, 2004 from $16.8 million for the same period in 2003,
an increase of $6.6 million, or 39.3%. As a percentage of net sales, gross
profit decreased to 54.9% in the three months ended September 30, 2004 from
57.1% 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 49.7% for the three months ended September 30, 2004 as compared to
Big Dogs' contribution of 58.0%. The Big Dogs' gross profit for the three month
period ended September 30, 2004 increased to 58.0% from 57.1% in the same period
in 2003. The 0.9% increase was primarily due to a shift from promotional or
lower-margined sales to higher-margined sales. 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 $19.4 million in the three months ended September 30, 2004 from
$12.4 million for the same period for 2003, an increase of $7.0 million, or
56.5%. The $7.0 million increase is primarily due to $7.5 million related to The
Walking Company. As a percentage of net sales, these expenses increased to 45.4%
in the three months ended September 30, 2004 from 42.0% in the same period in
2003, an increase of 3.4%. The increase is related to the acquisition of The
Walking Company, which has higher selling, marketing and distribution costs as a
percentage of their revenue in the third quarter, and an increase in the Big
Dogs' selling, marketing and distribution expenses as a percentage of net sales
for the three month period ended September 30, 2004 compared to the same period
in 2003 due to spreading the revenue over a lower sales base.
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 $1.8
million for the three months ended September 30, 2004 from $1.2 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 increased to
4.2% in the three months ended September 30, 2004 from 4.0% for the same period
in 2003.
INTEREST EXPENSE. Interest expense increased to $0.2 million for the
three month period ended September 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%.
Nine Months Ended September 30, 2004 and 2003
NET SALES. Net sales increased to $105.6 million for the nine months
ended September 30, 2004 from $69.1 million for the same period in 2003, an
increase of $36.5 million, or 52.8%. The increase was primarily related to $39.2
million in sales from the acquisition of The Walking Company on March 3, 2004.
This increase was offset by $0.9 million attributable to a decrease in
comparable store sales of 1.5%, $0.7 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 $1.1
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. During the second
quarter, the Company closed its wholesale division, which accounted for 2% of
revenues in 2003.
GROSS PROFIT. Gross profit increased to $57.7 million for the nine
months ended September 30, 2004 from $39.2 million for the same period in 2003,
an increase of $18.5 million, or 47.2%. As a percentage of net sales, gross
profit decreased to 54.6% in the nine months ended September 30, 2004 from 56.7%
for the same period in 2003. The decrease was attributable to the addition of
The Walking Company store sales as of 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 September 30, 2004 as compared to Big Dogs' contribution of 57.5%. The Big
Dogs' gross profit for the nine month period ended September 30, 2004 increased
to 57.5% from 56.7% in the same period in 2003. The 0.8% increase was primarily
due to a shift from promotional or lower-margined sales to higher-margined
sales. 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 $52.4 million in the nine months ended
September 30, 2004 from $35.6 million for the same period for 2003, an increase
of $16.8 million, or 47.2%. The $16.8 million increase is primarily due to $17.6
million related to The Walking Company. As a percentage of net sales, these
expenses decreased to 49.6% in the nine months ended September 30, 2004 from
51.5% in the same period in 2003, a decrease of 1.9%. 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 $5.5 million for the nine months ended September 30, 2004
from $3.7 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 5.2% in the nine months ended September 30, 2004
from 5.4% 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 $0.6 million for the
nine month period ended September 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 fourth
quarter as discussed in "Seasonality" below.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2004, the Company's primary
uses of cash were for merchandise inventories, the acquisition of The Walking
Company, 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 $12.6 million and $7.4 million
for the nine months ended September 30, 2004 and 2003, respectively. The
increase in cash used in operating activities is principally due to an increase
in merchandise inventory.
Cash used in investing activities was $2.7 million and $0.7 million for
the nine months September 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 $7.1 million in the nine
months ended September 30, 2004 compared to $2.5 million in the same period in
2003. As of September 30, 2004 the Company had short term borrowings of $15.6
million under its borrowing agreements. As of September 30, 2003 the Company had
short term borrowings of $2.9 million.
In October 2001, the Company entered into a credit facility with Wells
Fargo Retail Finance, which was most recently amended in August 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. 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%
(4.50% at September 30, 2004), which is based on excess availability levels. As
of September 30, 2004 and December 31, 2003, the Company had $11,797,000 and $0,
respectively, outstanding under the Amended Credit Agreement. Additionally, the
Company had $1,263,000 and $966,000, respectively, of letters of credit
outstanding as of September 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%
(5.00% at September 30, 2004), which is based on excess availability levels. As
of September 30, 2004, TWC had approximately $3,831,000 outstanding under this
credit agreement and $85,000 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% and is personally guarantied by the Chairman of
the Company, for which he received an annual 2.5% guarantee fee of $75,000. At
September 30, 2004, no amounts were 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 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 second quarter, certain note holders 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. As an inducement to
cash out, 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 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 $627,000. 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
September 30, 2004, $97,000 of the priority tax claim note has been classified
as current and is included in current portion of long-term debt 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 September 30, 2004, we had the following obligations, net of
interest:
Total
Amounts Less than 1 1 to 3 4 to 5
Committed year years years Over 5 years
----------------- --------------- --------------- --------------- -----------------
Debt:
Revolving lines of
credit $ 15,628,000 $15,628,000 $ - $ - $ -
Priority tax claims 627,000 97,000 265,000 265,000 -
Contractual Obligations:
Operating leases 86,512,000 22,593,000 34,183,000 18,421,000 11,315,000
Capital leases 473,000 175,000 293,000 5,000 -
Other Commercial Commitments:
Letters of credit 983,000 983,000 - - -
Standby letters of
credit 365,000 365,000 - - -
----------------- --------------- --------------- --------------- -----------------
Total Commitments $104,588,000 $39,841,000 $34,741,000 $18,691,000 $11,315,000
----------------- --------------- --------------- --------------- -----------------
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% based on excess availability levels. The Company's market risk on
interest rate movements will increase based on higher borrowing levels. See
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources."
ITEM 4:
CONTROLS AND PROCEDURES
At September 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 received rights to convert certain promissory notes
issued by TWC into 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
September 30, 2004, 993,146 shares were issued as a result of
these rights.
In addition, in July, 2004 the Company repurchased 74,846
shares of its common stock.
Total
Number of
Shares
Purchased Dollar
as Part Value that
Total Average of May Yet be
Number of Price Publicly Purchased
Shares Paid per Announced Under the
Purchased Share Plan Plan (1)
---------------- ------------- -------------- ---------------
7/1/2004 -
7/31/2004 74,846 $ 5.00 1,529,998 $1,772,000
8/1/2004 -
8/31/2004 - - 1,529,998 1,772,000
9/1/2004 -
9/30/2004 - - 1,529,998 1,772,000
(1) In March 1998, the Company announced that its Board
authorized the repurchase of up to $10,000,000 of its common
stock. The plan does not have a termination date.
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) Exhibits:
32.1 Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On October 1, 2004 and on October 12, 2004 the
Company filed a Form 8-K and a Form 8-K/A to disclose
the replacement of their independent accountants. On
November 9, 2004 the Company filed an 8-K to disclose
third quarter results.
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 12, 2004 /s/ ANDREW D. FESHBACH
----------------------
Andrew D. Feshbach
President and Chief Executive Officer
(Principal Executive Officer)
November 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: November 12, 2004
By /s/ ANDREW D. FESHBACH
-------------------------
Andrew D. Feshbach
President and Chief Executive Officer
ChieI 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 a 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: November 12, 2004
By /s/ ROBERTA J. MORRIS
------------------------
Roberta J. Morris
Chief Financial Officer