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, 1998
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 77-0395316
(State or jurisdiction of (IRS employer
incorporation or organization) identification no.)
121 GRAY AVENUE
SANTA BARBARA, CALIFORNIA 93101
(Address of principal executive offices) (zip code)
(805) 963-8727
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
The number of shares outstanding of the registrant's common stock, par value
$.01 per share, at November 12, 1998 was 12,100,350 shares.
<PAGE>
BIG DOG HOLDINGS, INC
INDEX TO FORM 10-Q
PART 1 FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 ...................... 3
Consolidated Statements of Operations -
Three months and nine months ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flow -
Nine months ended September 30, 1998 and 1997 ................. 5
Notes to Consolidated Financial Statements .................... 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 7
ITEM 3: Quantitative and Qualitative Disclosures about
Market Risk ................................................... 11
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings ................................................... 11
ITEM 2: Changes in Securities ............................................... 11
ITEM 3: Defaults upon Senior Securities ..................................... 11
ITEM 4: Submission of Matters to a Vote of Security Holders ................. 11
ITEM 5: Other Information ................................................... 11
ITEM 6: Exhibits and Reports on Form 8-K .................................... 11
SIGNATURE PAGE .............................................................. 12
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
------------------- -------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 936,000 $ 23,508,000
Accounts receivable, net 1,049,000 751,000
Inventories 30,952,000 16,714,000
Prepaid expenses and other current assets 2,291,000 744,000
Deferred income taxes 384,000 144,000
------------------- -------------------
Total current assets 35,612,000 41,861,000
PROPERTY AND EQUIPMENT, Net 12,435,000 10,232,000
INTANGIBLE ASSETS, Net 25,000 131,000
OTHER ASSETS 646,000 360,000
=================== ===================
TOTAL $ 48,718,000 $ 52,584,000
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,759,000 $ 2,767,000
Income taxes payable 361,000 1,395,000
Accrued expenses and other current liabilities 2,196,000 2,231,000
------------------- -------------------
Total current liabilities 8,316,000 6,393,000
DEFERRED RENT 799,000 650,000
------------------- -------------------
Total liabilities $ 9,115,000 $ 7,043,000
------------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 3,000,000 shares
authorized, 0 issued and outstanding
Common stock $.01 par value, 30,000,000 shares authorized, 12,100,350 and
13,159,550 issued and outstanding at September 30, 1998 and
December 31, 1997, respectively $ 132,000 $ 132,000
Additional paid-in capital 42,280,000 42,224,000
Retained earnings 4,180,000 3,732,000
Treasury stock, 1,083,200 shares at September 30, 1998 (6,479,000) -
Notes receivable from common stockholders (510,000) (547,000)
------------------- -------------------
Total stockholders' equity 39,603,000 45,541,000
------------------- -------------------
TOTAL $ 48,718,000 $ 52,584,000
=================== ===================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- ---------------------------------------
1998 1997 1998 1997
------------------ ------------------ ------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 28,354,000 $ 24,129,000 $ 64,955,000 $ 55,272,000
COST OF GOODS SOLD 11,266,000 10,022,000 26,644,000 23,230,000
------------------ ------------------ ------------------ ------------------
GROSS PROFIT 17,088,000 14,107,000 38,311,000 32,042,000
------------------ ------------------ ------------------ ------------------
OPERATING EXPENSES:
Selling, marketing and distribution 11,895,000 9,879,000 34,111,000 27,643,000
General and administrative 1,330,000 1,118,000 3,812,000 3,229,000
------------------ ------------------ ------------------ ------------------
Total operating expenses 13,225,000 10,997,000 37,923,000 30,872,000
------------------ ------------------ ------------------ ------------------
INCOME FROM OPERATIONS 3,863,000 3,110,000 388,000 1,170,000
INTEREST EXPENSE (INCOME), NET (33,000) 518,000 (340,000) 1,485,000
------------------ ------------------ ------------------ ------------------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 3,896,000 2,592,000 728,000 (315,000)
PROVISION (BENEFIT) FOR INCOME
TAXES 1,496,000 985,000 280,000 (119,000)
------------------ ------------------ ------------------ ------------------
NET INCOME (LOSS) $ 2,400,000 $ 1,607,000 $ 448,000 $ (196,000)
================== ================== ================== ==================
NET INCOME (LOSS) PER SHARE:
BASIC $ 0.20 $ 0.16 $ 0.04 $ (0.02)
================== ================== ================== ==================
DILUTED $ 0.20 $ 0.15 $ 0.04 $ (0.02)
================== ================== ================== ==================
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 12,183,000 10,355,000 12,599,000 10,227,000
DILUTED 12,204,000 10,652,000 12,643,000 10,227,000
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
--------------------------------------
1998 1997
------------------ -----------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 448,000 $ (196,000)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,745,000 1,841,000
Provision for losses on receivables 23,000 18,000
Loss on disposition of property and equipment 81,000 36,000
Deferred income taxes (240,000) (157,000)
Changes in operating assets and liabilities:
Receivables (320,000) 123,000
Inventories (14,238,000) (6,118,000)
Prepaid expenses and other assets (1,547,000) (1,060,000)
Accounts payable 2,992,000 2,605,000
Income taxes payable (1,034,000) (400,000)
Accrued expenses and other current liabilities (35,000) 293,000
Deferred rent 149,000 164,000
------------------ -----------------
Net cash used in operating activities (10,976,000) (2,851,000)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,936,000) (3,476,000)
Proceeds from sale of capitalized assets 13,000 -
Other (288,000) (7,000)
------------------ -----------------
Net cash used in investing activities (5,211,000) (3,483,000)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (6,494,000) -
Proceeds from exercise of stock options and warrants 72,000 651,000
Principal repayments of notes receivable 37,000 -
Principal repayments under capital lease obligations - (384,000)
Short-term borrowings, net - 6,190,000
------------------ -----------------
Net cash provided by (used in) financing activities (6,385,000) 6,457,000
------------------ -----------------
NET INCREASE (DECREASE) IN CASH (22,572,000) 123,000
CASH, BEGINNING OF PERIOD 23,508,000 723,000
================== =================
CASH, END OF PERIOD $ 936,000 $ 846,000
================== =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 7,000 $ 1,416,000
Income taxes $ 1,553,000 $ 437,000
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company entered into capital lease obligations of $18,000 for new
equipment for the nine months ended September 30, 1997.
On September 25, 1997 the Company's initial public offering of 2,800,000
shares of common stock for $14.00 per share became effective. At September
30, 1997, net proceeds of $36,456,000 were included in a receivable
account.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information with the instructions to Form 10-Q and Rule 10-01 of Regulations
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In the opinion of management, all adjustments, consisting only of
normal recurring entries necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, refer to the financial statements
and footnotes thereto for Big Dog Holdings, Inc. and its wholly owned
subsidiary, Big Dog USA, Inc. (the "Company") as of and for the years ended
December 31, 1997, 1996 and 1995.
NOTE 2. Basic Earnings (Net Loss) Per Share:
Basic earnings (net loss) per share is calculated based on the weighted
average number of shares outstanding. Diluted earnings (net loss) per share is
calculated based on the same number of shares plus additional shares
representing stock distributable under stock-based plans computed using the
treasury stock method.
NOTE 3. Short-term Borrowings
The Company has a line of credit arrangement with a bank whereby the
Company may borrow up to $8,000,000 as cash advances and letters of credit.
Borrowings under the line of credit bear interest at the bank's prime loan rate
less 3/8% or 250 basis points over the LIBOR rate. As of September 30, 1998
there were no borrowings. The line of credit expires on February 19, 1999 and is
collateralized by substantially all assets of the Company.
The Company has commitments under letters of credit totaling $712,000
at September 30, 1998. The letters of credit expire through December 31, 1998.
NOTE 4. Stockholders' Equity
Effective February 5, 1998, the Company amended the 1997 Performance
Award Plan (the "Plan")to increase the maximum number of shares reserved for
issuance under the Plan to 2,000,000.
Effective April 7, 1998, the Company repriced (by canceling and
reissuing) 444,750 options granted under the Plan. The re-priced options have a
ten-year life and either (i) have an exercise price of $6.50 per share (fair
market value at grant date) and vest in equal installments on each anniversary
of the April 7 grant date over the next five years or (ii) as to officers, have
an exercise price ranging from $6.50 to $10.00 and vest at varying rates of 10%
to 20% per year on each anniversary of the April 7 grant date over the next
seven years. Additionally, on April 7, 1998 the Company granted 1,086,650
options to certain employees and the Chairman of the Board on the same terms as
the repriced options.
In March 1998, the Company announced that its Board authorized the
repurchase of up to $10,000,000 of its common stock.
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.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 and 1997
NET SALES. Net sales consist of sales from the Company's stores,
catalog, and wholesale accounts, all net of returns and allowances. Net sales
increased to $28.4 million for the three months ended September 30, 1998 from
$24.1 million for the same period in 1997, a net increase of $4.3 million. Of
the net increase, $3.9 million was attributable to stores not yet qualifying as
comparable stores, $0.1 million was attributable to the 0.5% increase in
comparable store sales for the period and $0.3 million increase came from the
Company's wholesale and catalog business.
GROSS PROFIT. Gross profit increased to $17.1 million for the three
months ended September 30, 1998 from $14.1 million for the same period in 1997,
an increase of $3.0 million or 21.1%. As a percentage of net sales, gross profit
increased to 60.3% in the three months ended September 30, 1998 from 58.5% in
the same period in 1997. This 1.8% increase was primarily attributable to
improved purchasing and sourcing of certain merchandise and the opening of its
full-price stores, which operate at a higher gross margin than its outlet
stores. The Company operated 19 and 5 full-price stores at September 30, 1998
and 1997, respectively.
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 $11.9 million in the three months ended September 30, 1998 from
$9.9 million in the same period for 1997, an increase of $2.0 million, or 20.4%.
As a percentage of net sales, these expenses increased to 42.0% in the three
months ended September 30, 1998 from 40.9% in the same period in 1997. This
increase in operating expenses as a percentage of net sales was primarily
attributable to higher distribution expenses associated with the operations of
the Company's new distribution facility.
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of administrative salaries, corporate occupancy costs and other
corporate expenses. General and administrative expenses increased to $1.3
million in the three months ended September 30, 1998 from $1.1 million in the
same period in 1997. As a percentage of net sales, these expenses increased to
4.7% in the three months ended September 30, 1998 from 4.6% in the comparable
1997 period.
INTEREST INCOME AND EXPENSE. Interest income was $33,000 in the three
months ended September 30, 1998 compared to $0.5 million in interest expense in
the same period in 1997. In October 1997, the Company's initial public offering
closed and all debt was paid off with a portion of the net proceeds.
Subsequently, proceeds were held in a money market fund.
Nine Months Ended September 30, 1998 and 1997
NET SALES. Net sales consist of sales from the Company's stores,
catalog, and wholesale accounts, all net of returns and allowances. Net sales
increased to $65.0 million for the nine months ended September 30, 1998 from
$55.3 million for the same period in 1997, an increase of $9.7 million. Of the
increase, $9.4 million was attributable to stores not yet qualifying as
comparable stores, $0.2 million was attributable to the 0.5% increase in
comparable store sales for the period and $0.1 million increase came from the
Company's wholesale and catalog business.
GROSS PROFIT. Gross profit increased to $38.3 million for the nine
months ended September 30, 1998 from $32.0 million for the same period in 1997,
an increase of $6.3 million or 19.6%. As a percentage of net sales, gross profit
increased to 59.0% in the nine months ended September 30, 1998 from 58.0% in the
same period in 1997. This 1.0% increase was primarily attributable to improved
purchasing and sourcing of certain merchandise.
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 $34.1 million in the nine months ended September 30, 1998 from
$27.6 million in the same period for 1997, an increase of $6.5 million, or
23.4%. As a percentage of net sales, these expenses increased to 52.5% in the
nine months ended September 30, 1998 from 50.0% in the same period in 1997. This
increase in operating expenses as a percentage of net sales was primarily
attributable to higher distribution expenses associated with the operations of
the Company's new distribution facility.
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 $3.8
million in the nine months ended September 30, 1998 from $3.2 million in the
same period in 1997. As a percentage of net sales, these expenses increased to
5.9% in the nine months ended September 30, 1998 from 5.8% in the comparable
1997 period.
INTEREST INCOME AND EXPENSE. Interest income increased to $0.3 million
in the nine months ended September 30, 1998 from $1.5 million in interest
expense in the same period in 1997. In October 1997, the Company's initial
public offering closed and all debt was paid off with a portion of the net
proceeds. Subsequently, proceeds were held in a money market fund.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1998, the Company's primary
uses of cash were for the build-out of its new distribution center facility, new
stores, purchase of merchandise inventories, payment of income taxes, and stock
repurchases. The Company satisfied its cash requirements with the proceeds of
its issuance of common stock in 1997. In March 1998, the Company's Board of
Directors authorized the Company to repurchase up to $10 million of its common
stock. As of September 30, 1998, the Company has repurchased 1,083,200 shares
for $6,479,000.
Cash used in operating activities was $11.0 million and $2.9 million
for the nine months ended September 30, 1998 and 1997, respectively. The $8.1
million increase in the use of cash is primarily attributable to forward
inventory purchases as well as increased inventory purchases for use in the
management of the graphic T-shirt, mail order and wholesale businesses.
Cash used in investment activities for the nine months ended September
30, 1998 and 1997 were $5.2 million and $3.5 million, respectively. Cash flows
used in investment activities for the nine months ended September 30, 1998
related primarily to the build-out and equipment purchases for the Company's
distribution facility and 22 new store openings.
Cash used in financing activities in the nine months ended September
30, 1998 was $6.4 million compared to cash proceeds of $6.5 million during the
same period in 1997. In the nine months ended September 30, 1998 the Company
repurchased 1,083,200 shares of its common stock. In the same period in 1997,
the Company received approximately $6.2 million under its revolving credit
facility, repaid capital lease obligations of $0.4 million, and received $0.7
million from the exercise of stock options.
The Company has a revolving credit facility with a bank that expires on
February 19, 1999. The revolving credit facility provides for an $8 million line
that can be used for cash advances and letters of credit. Interest on advances
is payable at the bank's prime rate less 3/8% or 250 basis points over the LIBOR
rate.
SEASONALITY
The Company's business is seasonal by nature. However, the Company
believes its seasonality is somewhat different than many apparel retailers since
a significant number of the Company's stores are located in tourist areas and
outdoor malls that have different visitation patterns than urban and suburban
retail centers. The third and fourth quarters (consisting of the summer
vacation, back-to-school and Christmas seasons) have historically accounted for
the largest percentage of the Company's annual sales and profits. The Company
has historically incurred operating losses in its first quarter and close to
break-even results in the second quarter. As the Company continues to open new
stores this seasonal pattern in the foreseeable future will become even greater
and will reflect a larger percentage of its sales and profits in the third and
fourth quarters.
YEAR 2000
The Company has conducted a review of its computer systems to determine
and address any potential implications of "Year 2000 compliance." "Year 2000
compliance" refers to the inability of certain computer systems to recognize
dates commencing on January 1, 2000. Such inability has the potential to
materially adversely affect the operation of some computer systems. The Company
currently believes that by upgrading its current software and converting to new
software for certain tasks, it will remedy any potential material Year 2000
compliance issues and further believes that such compliance tasks will not pose
significant operations problems nor be material to its financial position or
results of operations in any given year.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain sections of this Quarterly Report on Form 10-Q, including the
preceding "Management's Discussion and Analysis of Financial Condition and
Results of Operations," contain various forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended, which represents the
Company's expectations or beliefs concerning future events. These forward
looking statements involve risk and uncertainties, and the Company cautions that
these statements are further qualified by important factors that could cause
actual results to differ materially from those in the forward looking
statements. Primary factors that could cause actual results to differ are
indicated in the Company's Form 10-K for the year ending December 31, 1997 and
Prospectus dated September 25, 1997 filed with the Securities and Exchange
Commission.
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Not applicable
ITEM 2: CHANGES IN SECURITIES
Not applicable
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON 8-K
(a) Exhibits
Exhibit No. Document Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K - Not applicable
<PAGE>
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, 1998 /s/ ANDREW D. FESHBACH
Andrew D. Feshbach
President and Chief Executive Officer
(Principal Executive Officer)
November 12, 1998 /s/ ROBERTA J. MORRIS
Roberta J. Morris
Chief Financial Officer and Treasurer
+ (Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 936
<SECURITIES> 0
<RECEIVABLES> 1139
<ALLOWANCES> (90)
<INVENTORY> 30952
<CURRENT-ASSETS> 35612
<PP&E> 20325
<DEPRECIATION> (7890)
<TOTAL-ASSETS> 48718
<CURRENT-LIABILITIES> 8316
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 39603
<TOTAL-LIABILITY-AND-EQUITY> 48718
<SALES> 64955
<TOTAL-REVENUES> 64955
<CGS> 26644
<TOTAL-COSTS> 37923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (340)
<INCOME-PRETAX> (728)
<INCOME-TAX> (280)
<INCOME-CONTINUING> 448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 448
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
