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, 2000
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 52-186866
(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 4, 2000 was 11,976,350 shares.
<PAGE>
BIG DOG HOLDINGS, INC
INDEX TO FORM 10-Q
PAGE
NO.
PART I. FINANCIAL INFORMATION................... .....................3
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999...........................3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months and six months ended June 30, 2000 and 1999......4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2000 and 1999.......................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............................................10
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............................................11
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.............................11
SIGNATURES .............................................................11
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 2000
------------------- ------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents........................................ $ 4,322,000 $17,925,000
Accounts receivable, net......................................... 1,123,000 968,000
Inventories...................................................... 29,879,000 19,950,000
Prepaid expenses and other current assets........................ 1,851,000 1,107,000
Deferred income taxes............................................ 1,684,000 875,000
------------------- ------------------
Total current assets........................................... 38,859,000 40,825,000
PROPERTY AND EQUIPMENT, Net......................................... 11,032,000 12,037,000
INTANGIBLE ASSETS, Net.............................................. 143,000 117,000
OTHER ASSETS........................................................ 3,485,000 3,434,000
------------------- ------------------
TOTAL............................................................... $53,519,000 $56,413,000
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 5,806,000 $ 3,411,000
Income taxes payable............................................. 7,000 1,768,000
Accrued expenses and other current liabilities................... 2,294,000 3,184,000
------------------- ------------------
Total current liabilities...................................... 8,107,000 8,363,000
DEFERRED RENT....................................................... 887,000 878,000
DEFERRED GAIN ON SALE-LEASEBACK..................................... 485,000 512,000
------------------- ------------------
Total liabilities................................................ 9,479,000 9,753,000
------------------- ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 3,000,000 shares
Authorized, none issued and outstanding........................ $ --- $ ---
Common stock, $.01 par value, 30,000,000 shares
Authorized, 13,183,550 issued at June 30, 2000 and
December 31, 1999.............................................. 132,000 132,000
Additional paid-in capital....................................... 42,417,000 42,417,000
Retained earnings................................................ 9,258,000 11,750,000
Treasury stock, 1,207,200 and 1,183,200 shares at June 30,
2000 and December 31, 1999.................................... (7,113,000) (7,006,000)
Notes receivable from common stockholders........................ (654,000) (633,000)
------------------- ------------------
Total stockholders' equity..................................... 44,040,000 46,660,000
------------------- ------------------
TOTAL............................................................... $53,519,000 $56,413,000
=================== ==================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES...................................... $ 26,205,000 $ 24,093,000 $ 42,791,000 $ 40,836,000
COST OF GOODS SOLD............................. 10,682,000 9,533,000 18,112,000 17,389,000
------------- ------------- ------------- -------------
GROSS PROFIT................................... 15,523,000 14,560,000 24,679,000 23,447,000
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Selling, marketing and distribution. 12,537,000 12,107,000 24,323,000 23,430,000
General and administrative.......... 1,342,000 1,249,000 2,671,000 2,464,000
------------- ------------- ------------- -------------
Total operating expenses... 13,879,000 13,356,000 26,994,000 25,894,000
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS.................. 1,644,000 1,204,000 (2,315,000) (2,447,000)
INTEREST INCOME, NET........................... (44,000) --- (215,000) (94,000)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES.......... 1,688,000 1,204,000 (2,100,000) (2,353,000)
PROVISION (BENEFIT) FOR INCOME TAXES........... 650,000 470,000 (808,000) (917,000)
------------- ------------- ------------- -------------
NET INCOME (LOSS).............................. $ 1,038,000 $ 734,000 $ (1,292,000) $ (1,436,000)
============= ============= ============= =============
NET INCOME (LOSS) PER SHARE
BASIC AND DILUTED................... $ 0.09 $ 0.06 $ (0.11) $ (0.12)
============= ============= ================ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC............................... 11,986,000 12,029,000 11,986,000 12,064,000
DILUTED............................. 12,070,000 12,160,000 11,986,000 12,064,000
</TABLE>
See accompanying notes.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS(Unaudited)
<TABLE>
Six Months Ended
June 30,
-------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (1,292,000) $ (1,436,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.......................... 1,997,000 2,053,000
Provision for losses on receivables.................... 22,000 27,000
Loss on disposition of property and equipment.......... 2,000 15,000
Deferred income taxes.................................. (808,000) (916,000)
Changes in operating assets and liabilities:
Receivables....................................... (177,000) 50,000
Inventories....................................... (9,929,000) (2,534,000)
Prepaid expenses and other assets................. (744,000) (581,000)
Accounts payable.................................. 2,395,000 577,000
Income taxes payable.............................. (1,761,000) (2,477,000)
Accrued expenses and other current liabilities.... (890,000) (920,000)
Deferred Rent..................................... 9,000 46,000
Deferred gain on sale-leaseback................... (27,000) ---
-------------- --------------
Net cash used in operating activities (11,203,000) (6,096,000)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (979,000) (3,049,000)
Principal repayments of notes receivable.................. (81,000) 12,000
Other..................................................... (33,000) 19,000
-------------- -------------
Net cash used in investing activities........ (1,093,000) (3,018,000)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock................................ (107,000) (512,000)
Dividend payment.......................................... (1,200,000) (1,210,000)
-------------- -------------
Net cash used in financing activities........ (1,307,000) (1,722,000)
-------------- -------------
NET DECREASE IN CASH........................................ (13,603,000) (10,836,000)
CASH, BEGINNING OF PERIOD................................... 17,925,000 13,458,000
-------------- -------------
CASH, END OF PERIOD......................................... $ 4,322,000 $ 2,622,000
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ --- $ 15,000
Income taxes $ 1,761,000 $ 2,474,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In April 2000, the Company purchased $420,000 of PetSmart.com Series D
preferred stock from certain officers and other individuals of the Company in
exchange for cash and the related notes.
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 and with the instructions to Form 10-Q and Rule 10-01 of Regulations
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In the opinion of management, all adjustments, consisting only of
normal recurring entries necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. 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") included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
NOTE 2. Short-term Borrowings
The Company had a borrowing arrangement with a bank whereby the Company
could, from time to time and upon approval from the bank, borrow up to $8
million. Such borrowings could be used for cash advances and letters of credit.
The borrowing arrangement provided for interest at the bank's prime rate less
3/8% or 250 basis points over the LIBOR rate and was collateralized by
substantially all the assets of the Company. As of June 30, 2000, the Company
had no advances and $2,086,000 of letters of credit outstanding. This borrowing
arrangement terminated upon commencement of the $30 million revolving credit
facility - see note 4. The letters ofcredit opened under this arrangement will
continue through their respective expiration dates, the latest of which
expires December 31, 2000.
NOTE 3. Dividend Paid
On March 27, 2000, the Company paid an annual dividend to stockholders
of record at the close of business on March 11, 2000, in the amount of $0.10 per
share, totaling $1,200,000.
NOTE 4. Stockholder's Equity
In March 1998, the Company announced that its Board authorized the
repurchase of up to $10,000,000 of its common stock. Between January 1, 2000 and
July 31, 2000, the Company repurchased 19,000 shares of common stock.
On July 31, 2000, the Company announced that its Board of Directors
authorized the Company to purchase by tender offer up to 3.5 million shares of
the Company's common stock at $6.25 per share, which represents approximately
29% of the outstanding shares. The offer commenced on August 2, 2000 and will
expire on August 30, 2000. The Company intends to fund the tender offer from
available cash and borrowing under a new $30 million, three year reducing
revolving credit facility entered into with a bank on July 28, 2000. The
facility is secured by substantially all assets of the Company and requires the
compliance of various financial, affirmative and negative convents. The
agreement provides for a performance-pricing structured interest charge, ranging
from LIBOR plus 1.75% to 2.75%, based on the results of certain financial
ratios.
NOTE 5. Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company will adopt
SFAS No. 133 in the year ending December 31, 2000. The Company anticipates that
the adoption of SFAS No. 133 will not have a material impact on the Company's
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.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 and 1999
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 $26.2 million for the three months ended June
30, 2000 from $24.1 million for the same period in 1999, an increase of $2.1
million or 8.7%. Of the increase, $0.5 million was attributable to a 2.1%
comparable stores sales increase and $1.8 million from stores not yet qualifying
as comparable stores, net of a $0.2 million decrease in mail order sales.
GROSS PROFIT. Gross profit increased to $15.5 million for the three
months ended June 30, 2000 from $14.6 million for the same period in 1999, an
increase of $0.9 million or 6.2%. As a percentage of net sales, gross profit
decreased to 59.2% in the three months ended June 30, 2000 from 60.4% in the
same period in 1999. This 1.2% decrease was due in part to an increase in
product overhead costs of approximately 0.8% as well as a change in the sales
product mix and promotion strategy.
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 $12.5 million in the three months ended June 30, 2000 from $12.1
million in the same period for 1999, an increase of $0.4 million, or 3.3%. As a
percentage of net sales, these expenses decreased to 47.8% in the three months
ended June 30, 2000 from 50.3% in the same period in 1999, a decrease of 2.5%.
During the three months ended June 30, 2000, the Company had an average of 194
stores in operation, compared to an average of 176 stores in the same period
1999. The increase in selling, marketing and distribution expenses is
primarily attributable to additional store operating costs of $0.8 million
and a $0.2 million increase in promotion and marketing expense. This is
offset by a $0.6 million decrease in catalog costs due to a reduction in the
catalog circulation plan in second quarter 2000 compared to the same period in
1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of administrative salaries, corporate occupancy costs and other
corporate expenses. General and administrative expenses increased to $1.3
million for the three months ended June 30, 2000 from $1.2 million for the same
period 1999, an increase of $0.1 million, or 8.3%. As a percentage of net sales,
these expenses decreased to 5.1% in the three months ended June 30, 2000 from
5.2% in the same period in 1999. The percentage decrease in general and
administrative expenses is attributable of spreading these expenses over a
larger revenue base.
INTEREST INCOME. Interest income increased to $44,000 in the three
months ended June 30, 2000 from no interest income in the same period in 1999,
principally due to higher average cash balances in 2000.
Six Months Ended June 30, 2000 and 1999
NET SALES. Net sales increased to $42.8 million for the six months
ended June 30, 2000 from $40.8 million for the same period in 1999, an increase
of $2.0 million or 4.9%. Of the increase, $2.7 million was attributable to
stores not yet qualifying as comparable stores, net of a $0.4 million decrease
in the Company's wholesale business and a $0.3 million decrease in mail order
sales. Comparable store sales remained flat for the six month period ended June
30, 2000, compared to the same period 1999.
GROSS PROFIT. Gross profit increased to $24.7 million for the six
months ended June 30, 2000 from $23.4 million for the same period in 1999, an
increase of $1.3 million or 5.6%. As a percentage of net sales, gross profit
increased to 57.7% in the three months ended June 30, 2000 from 57.4% in the
same period in 1999.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses increased to $24.3 million in the six months ended June
30, 2000 from $23.4 million in the same period for 1999, an increase of $0.9
million, or 3.8%. As a percentage of net sales, these expenses decreased to
56.8% in the six months ended June 30, 2000 from 57.4% in the same period in
1999, a decrease of 0.6%. During the six months ended June 30, 2000, the Company
had an average of 192 stores in operation, compared to an average of 176 stores
open in the same period 1999. The increase in selling, marketing and
distribution expenses is primarily attributable to additional store operating
costs of $1.6 and a $0.2 million increase in promotion and advertising expense.
This is offset by insurance proceeds of approximately $0.3 million and a $0.6
million decrease in mail order catalog costs due to a reduction in the catalog
circulation plan in the first half of 2000 compared to the same period in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $2.7 million for the six months ended June 30, 2000 from
$2.5 million for the same period 1999, an increase of $0.2 million, or 8.0%. As
a percentage of net sales, these expenses increased to 6.2% in the six months
ended June 30, 2000 from 6.0% in the same period in 1999.
INTEREST INCOME. Interest income increased to $0.2 million in the six
months ended June 30, 2000 from $0.1 million in the same period in 1999,
principally due to higher average cash balances in 2000.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2000, the Company's primary uses
of cash were for merchandise inventories, income taxes, dividends paid to
stockholders and capital expenditures. The Company satisfied its cash
requirements primarily from cash flow from operations and excess cash.
Cash used in operating activities was $11.2 million and $6.1 million
for the first six months ended June 30, 2000 and 1999, respectively. The $5.1
million increase was primarily due to earlier and increased purchasing of
inventory for the first six months in 2000.
Cash used in investing activities for the six months ended June 30,
2000 and 1999 were $1.1 million and $3.0 million, respectively. Cash flows used
in investment activities in the first six months of 2000 primarily related to 11
new store openings and capital additions to the Company's existing stores. Cash
flows used in investment activities in the first six months of 1999 related
primarily to the build-out of the second floor mezzanine at the Company's
distribution facility, 6 new store openings and capital additions to the
Company's existing stores.
Cash used in financing activities in the six months ended June 30, 2000
and 1999 were $1.3 million and $1.7 million, respectively. In the six months
ended June 30, 2000 and 1999, the Company paid an annual dividend of $0.10 per
share to stockholders.
The Company had a borrowing arrangement with a bank whereby the Company
could, from time to time and upon approval from the bank, borrow up to $8
million. Such borrowings could be used for cash advances and letters of credit.
The borrowing arrangement provided for interest at the bank's prime rate less
3/8% or 250 basis points over the LIBOR rate and was collateralized by
substantially all the assets of the Company. As of June 30, 2000, the Company
had no advances and $2,086,000 of letters of credit outstanding. The letters of
credit opened under this arrangement will continue through their respective
expiration dates, the latest of which expires December 31, 2000. This borrowing
arrangement terminated upon commencement of a new $30 million, three year
reducing revolving credit facility entered into with a bank on July 28, 2000.
The new facility is secured by substantially all assets of the Company and
requires the compliance of various financial, affirmative and negative convents.
The agreement provides for a performance-pricing structured interest charge,
ranging from LIBOR plus 1.75% to 2.75%, based on the results of certain
financial ratios.
SEASONALITY
The Company believes its seasonality is somewhat different than many
apparel retailers since a significant number of the Company's stores are located
in tourist areas and outdoor malls that have different visitation patterns than
urban and suburban retail centers. The third and fourth quarters (consisting of
the summer vacation, back-to-school and Christmas seasons) have historically
accounted for the largest percentage of the Company's annual sales and profits.
The Company has historically incurred operating losses in its first quarter and
may be expected to do so in the foreseeable future.
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 include
those listed in the Company's Form 10-K for the year ended December 31, 1999
filed with the Securities and Exchange Commission.
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
The Registrant's Annual Meeting of Stockholders was held on
June 2, 2000.
Proxies for the Annual Meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934, as
amended. There was no solicitation in opposition to
management's nominees as listed in the Proxy Statement. Such
nominees were elected.
The matters voted upon at the Annual Meeting and the results
thereof were as follows:
1. To elect Class III Directors, each to hold office for
a three-year term and until each of their successors
are elected and qualified.
FOR WITHHELD
Fred Kayne 11,265,651 6,816
Andrew D. Feshbach 11,265,651 6,816
2. To ratify the election of Deloitte & Touche LLP as
independent certified public accounts for the year ending
December 31, 2000.
FOR AGAINST ABSTAINED
11,265,014 3,953 3,500
ITEM 5: OTHER INFORMATION
Not applicable
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Document Description
----------- --------------------
27.1 Financial Data Schedule
10.1 Credit Agreement among the Company, Big Dog
USA, Inc., Bank of America, N.A., Israel
Discount Bank and Santa Barbara Bank &
Trust dated July 28, 2000 *
(b) Reports on Form 8-K
Not applicable
* Incorporated by reference from the Company's Schedule TO filed
July 31, 2000
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 11, 2000 /s/ ANDREW D. FESHBACH
-------------------
Andrew D. Feshbach
President and Chief Executive Officer
(Principal Executive Officer)
August 11, 2000 /s/ ROBERTA J. MORRIS
---------------------
Roberta J. Morris
Chief Financial Officer and Treasurer
(Principal Financial Officer)
