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, 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 August 12, 1998 was 12,186,850 shares.
<PAGE>
BIG DOG HOLDINGS, INC
INDEX TO FORM 10-Q
PAGE NO.
PART 1 FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 ........................... 3
Consolidated Statements of Operations -
Three months and six months ended June 30, 1998 and 1997 ...... 4
Consolidated Statements of Cash Flow -
Six months ended June 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 ................................................... 10
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings ................................................... 10
ITEM 2: Changes in Securities ............................................... 10
ITEM 3: Defaults upon Senior Securities ..................................... 10
ITEM 4: Submission of Matters to a Vote of Security Holders ................. 10
ITEM 5: Other Information ................................................... 10
ITEM 6: Exhibits and Reports on Form 8-K .................................... 10
SIGNATURE PAGE .............................................................. 11
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------------- -------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,101,000 $ 23,508,000
Accounts receivable, net 909,000 751,000
Inventories 26,098,000 16,714,000
Prepaid expenses and other current assets 2,192,000 744,000
Deferred income taxes 1,483,000 144,000
------------------- -------------------
Total current assets 31,783,000 41,861,000
INTANGIBLE ASSETS, Net 64,000 131,000
OTHER ASSETS 517,000 360,000
------------------- -------------------
TOTAL $ 45,026,000 $ 52,584,000
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,886,000 $ 2,767,000
Income taxes payable - 1,395,000
Accrued expenses and other current liabilities 1,784,000 2,231,000
------------------- -------------------
Total current liabilities 6,670,000 6,393,000
DEFERRED RENT 797,000 650,000
------------------- -------------------
Total liabilities 7,467,000 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, 12,211,850 and
13,159,550 issued and outstanding at June 30, 1998 and December 31,
1997, respectively
132,000 132,000
Additional paid-in capital 42,280,000 42,224,000
Retained earnings 1,780,000 3,732,000
Treasury stock, 971,700 shares at June 30, 1998 (6,098,000) -
Notes receivable from common stockholders (535,000) (547,000)
------------------- -------------------
Total stockholders' equity 37,559,000 45,541,000
------------------- -------------------
TOTAL $ 45,026,000 $ 52,584,000
=================== ===================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------- ---------------------------------------
1998 1997 1998 1997
------------------ ------------------ ------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 22,389,000 $ 18,878,000 $ 36,601,000 $ 31,143,000
COST OF GOODS SOLD 8,816,000 7,613,000 15,378,000 13,208,000
------------------ ------------------ ------------------ ------------------
GROSS PROFIT 13,573,000 11,265,000 21,223,000 17,935,000
------------------ ------------------ ------------------ ------------------
OPERATING EXPENSES:
Selling, marketing and distribution 11,766,000 9,310,000 22,216,000 17,764,000
General and administrative 1,332,000 1,076,000 2,482,000 2,111,000
------------------ ------------------ ------------------ ------------------
Total operating expenses 13,098,000 10,386,000 24,698,000 19,875,000
------------------ ------------------ ------------------ ------------------
INCOME (LOSS) FROM OPERATIONS 475,000 879,000 (3,475,000) (1,940,000)
INTEREST EXPENSE (INCOME), NET (56,000) 511,000 (307,000) 967,000
------------------ ------------------ ------------------ ------------------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 531,000 368,000 (3,168,000) (2,907,000)
PROVISION (BENEFIT) FOR INCOME
TAXES 204,000 140,000 (1,216,000) (1,104,000)
------------------ ------------------ ------------------ ------------------
NET INCOME (LOSS) $ 327,000 $ 228,000 $ (1,952,000) $ (1,803,000)
================== ================== ================== ==================
NET INCOME (LOSS) PER SHARE
BASIC AND DILUTED $ 0.03 $ 0.02 $ (0.15) $ (0.18)
================== ================== ================== ==================
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 12,476,000 10,161,000 12,811,000 10,161,000
DILUTED 12,532,000 10,421,000 12,811,000 10,161,000
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
--------------------------------------
1998 1997
------------------ -----------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (1,952,000) $ (1,803,000)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,726,000 1,183,000
Provision for losses on receivables 15,000 14,000
Loss on disposition of property and equipment 81,000 37,000
Deferred income taxes (1,339,000) (1,133,000)
Changes in operating assets and liabilities:
Receivables (174,000) 71,000
Inventories (9,384,000) (3,360,000)
Prepaid expenses and other assets (1,448,000) (838,000)
Accounts payable 2,119,000 2,903,000
Income taxes payable (1,395,000) (400,000)
Accrued expenses and other current liabilities (447,000) (198,000)
Deferred rent 147,000 75,000
------------------ -----------------
Net cash used in operating activities (12,051,000) (3,449,000)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,182,000) (2,219,000)
Proceeds from sale of capitalized assets 13,000 -
Other (158,000) (14,000)
------------------ -----------------
Net cash used in investing activities (4,327,000) (2,233,000)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (6,113,000) -
Proceeds from exercise of warrants 72,000 -
Principal repayments of notes receivable 12,000 -
Principal repayments under capital lease obligations - (283,000)
Short-term borrowings, net - 6,892,000
------------------ -----------------
Net cash provided by (used in) financing activities (6,029,000) 6,609,000
------------------ -----------------
NET INCREASE (DECREASE) IN CASH (22,407,000) 927,000
CASH, BEGINNING OF PERIOD 23,508,000 723,000
------------------ -----------------
CASH, END OF PERIOD $ 1,101,000 $ 1,650,000
================== =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest - $ 885,000
Income taxes $ 1,518,000 $ 429,000
</TABLE>
See accompanying notes.
<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 three-month period ended March 31, 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. 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 June 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 $1,697,000
at June 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. Between April 1, 1998 and
August 12, 1998, the Company repurchased 996,700 shares of 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 June 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 $22.4 million for the three months ended June 30, 1998 from $18.9
million for the same period in 1997, an net increase of $3.5 million. Of the net
increase, $3.4 million was attributable to stores not yet qualifying as
comparable stores, $0.4 million was attributable to the 2.7% increase for the
period in comparable store sales, offset by a $0.3 million decrease in the
Company's wholesale and catalog business.
GROSS PROFIT. Gross profit increased to $13.6 million for the three
months ended June 30, 1998 from $11.3 million for the same period in 1997, an
increase of $2.3 million. As a percentage of net sales, gross profit increased
to 60.6% in the three months ended June 30, 1998 from 59.7% in the same period
in 1997. This 0.9% increase was primarily attributable to improved purchasing
and sourcing of certain merchandise. Additionally, the Company continues to roll
out full-price stores, which operate at a higher gross margin than its outlet
stores. At June 30, 1998 and 1997, the Company has 15 and 5 full-price stores,
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 $11.8 million in the three months ended June 30, 1998 from $9.3
million in the same period for 1997, an increase of $2.5 million. As a
percentage of net sales, these expenses increased to 52.6% in the three months
ended June 30, 1998 from 49.3% in the same period in 1997. This increase in
operating expenses as a percentage of net sales was primarily attributable to
start-up costs associated with 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 $1.3
million in the three months ended June 30, 1998 from $1.1 million in the same
period in 1997. As a percentage of net sales, these expenses increased to 5.9%
in the three months ended June 30, 1998 from 5.7% in the comparable 1997 period.
These expenses increased reflecting the Company's infrastructure investments,
which include the addition of certain key corporate employees.
INTEREST INCOME AND EXPENSE. Interest income increased to $0.1 million
in the three months ended June 30, 1998 from $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 that yielded an
approximate 5% per annum return.
Six Months Ended June 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 $36.6 million for the six months ended June 30, 1998 from $31.1
million for the same period in 1997, an increase of $5.5 million. Of the
increase, $5.3 million was attributable to stores not yet qualifying as
comparable stores, $0.1 million was attributable to the 0.4% increase for the
period in comparable store sales and $0.1 million increase was attributable to
the Company's wholesale and catalog business.
GROSS PROFIT. Gross profit increased to $21.2 million for the six
months ended June 30, 1998 from $17.9 million for the same period in 1997, an
increase of $3.3 million. As a percentage of net sales, gross profit increased
to 58.0% in the six months ended June 30, 1998 from 57.6% in the same period in
1997. This 0.4% 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 $22.2 million in the six months ended June 30, 1998 from $17.8
million in the same period for 1997, an increase of $4.4 million. As a
percentage of net sales, these expenses increased to 60.7% in the six months
ended June 30, 1998 from 57.0% in the same period in 1997. This increase in
operating expenses as a percentage of net sales was primarily attributable to
start-up costs associated with 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 $2.5
million in the six months ended June 30, 1998 from $2.1 million in the same
period in 1997. As a percentage of net sales, these expenses remained constant
at 6.8% in the six months ended June 30, 1998 and 1997.
INTEREST INCOME AND EXPENSE. Interest income increased to $0.3 million
in the six months ended June 30, 1998 from $1.0 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 that yielded an
approximate 5% per annum return.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 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 June 30, 1998, the Company had repurchased 971,700 shares for
$6,098,000.
Cash used in operating activities was $12.1 million and $3.5 million
for the six months ended June 30, 1998 and 1997, respectively. The increase in
the use of cash is primarily attributable to increased inventory purchases. Of
the $6.0 million increase, approximately $5.0 million of inventory was purchased
for use in the management of its graphic T-shirt business, mail order and
wholesale businesses, and approximately $1.0 million was related to forward
buying of certain key products.
Cash used in investment activities for the six months ended June 30,
1998 and 1997 were $4.3 million and $2.2 million, respectively. Cash used in
investment activities for the six months ended June 30, 1998 related primarily
to the build-out and equipment purchases for the Company's distribution facility
and 15 new store openings.
Cash used in financing activities for the six months ended June 30,
1998 was $6.0 million compared to cash proceeds of $6.6 million during the same
period in 1997. In the six months ended June 30, 1998 the Company repurchased
971,700 shares of its common stock. In the same period in 1997, the Company
received approximately $6.9 million under its revolving credit facility and
repaid capital lease obligations of $0.3 million.
The Company has a revolving credit facility with a bank that expires in
February 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 LIBOR.
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. The Company has identified three critical
business systems ("Information Technology" or "IT"), supported by vendors, that
could be negatively impacted by Year 2000 compliance. Two of the three critical
IT business systems have been tested and certified Year 2000 compliant. The
Company believes that by upgrading its remaining and most material critical
business software it will remedy any potential Year 2000 compliance issues. The
software vendor has certified the upgraded version to be Year 2000 compliant.
The upgrade of this software is scheduled to be completed by December 1998 and
will be thoroughly tested for Year 2000 compliance within the first quarter of
year 1999. In the event the software fails in any material manner, the Company
will be required to develop internal database systems until the problem can be
remedied. The Company has also assessed non-IT systems (i.e., embedded
technology such as microcontrollers) and will receive Year 2000 compliance
certificates for all such systems in 1998. The Company believes that such
compliance task 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.
August 12, 1998 /s/ ANDREW D. FESHBACH
----------------------
Andrew D. Feshbach
President and Chief Executive Officer
(Principal Executive Officer)
August 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> 6-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<CASH> 1101
<SECURITIES> 0
<RECEIVABLES> 998
<ALLOWANCES> (89)
<INVENTORY> 26098
<CURRENT-ASSETS> 31784
<PP&E> 19632
<DEPRECIATION> (6971)
<TOTAL-ASSETS> 45026
<CURRENT-LIABILITIES> 6669
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 37560
<TOTAL-LIABILITY-AND-EQUITY> 45026
<SALES> 36602
<TOTAL-REVENUES> 36602
<CGS> 15378
<TOTAL-COSTS> 24698
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (307)
<INCOME-PRETAX> (3168)
<INCOME-TAX> 1216
<INCOME-CONTINUING> (1952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1952)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
