NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE
1.
Basis of Presentation
The
accompanying unaudited consolidated financial statements have been prepared
in
accordance with accounting principles generally accepted 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 accounting principles generally accepted
in the United States of America for complete financial statements.
The
interim consolidated financial statements for the nine months ended September
30, 2006 contain the results of operations since January 31, 2006, of the
Company’s acquisition of primarily all the assets of Steve’s Shoes,
Inc. 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, 2007 are not necessarily
indicative of the results that may be expected for the year ending December
31,
2007. For further information, refer to the consolidated financial statements
and footnotes thereto for Big Dog Holdings, Inc. and subsidiaries (collectively,
the “Company”) included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2006. On January 1, 2007 the Company adopted the
provisions of Financial Accounting Standards Board (“FASB”) Interpretation No.
48,
Accounting for Uncertainty in Income Taxes – an Interpretation of FASB
Statement No. 109,
(“FIN 48”). For further discussion on the
adoption of FIN 48 see Note 9, Income Taxes — Implementation of
FIN 48.
NOTE
2.
Acquisition
Steve’s
Shoes, Inc.
On
January 31, 2006, the Company acquired, through bankruptcy court, substantially
all of the assets and assumed certain liabilities of Steve’s Shoes, Inc.,
pursuant to an asset purchase agreement for a purchase price of approximately
$4.2 million. The Company also incurred acquisition related costs of
$0.4 million. Of this amount $2.1 million was allocated to fixed
assets, $2.6 million was allocated to inventory and $0.1 million was allocated
to liabilities. The Company assumed liabilities for accrued vacation, certain
outstanding sales returns and gift certificates.
Under
the
terms of the asset purchase agreement, TWC acquired substantially all of the
assets of Steve’s Shoes, Inc. including, but not limited to, the inventory and
fixed assets of 37 stores. The primary reason for the acquisition was
to continue the growth of TWC by acquiring stores in strategic
locations. During 2006 and 2007, the Company converted the majority
of the acquired stores into “The Walking Company” stores. The
transaction was accounted for under the purchase method of accounting, and
accordingly the results of operations have been consolidated in the Company’s
financial statements since acquisition on January 31, 2006.
The
Company funded the purchase price by drawing upon existing lines of credit,
and
from available cash. No goodwill was recorded in connection with the
acquisition. Pro forma results of operations will not be presented as
the acquisition is not considered material (either individually or combined
with
the Footworks acquisition in 2005) to the Company’s consolidated financial
statements.
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 November 2006 (the “Amended Credit
Agreement”). Subsequent to the November 2006 amendment, the Amended
Credit Agreement provides for a total commitment of $60,000,000 with the ability
for the Company to issue documentary and standby letters of credit of up to
$3,000,000. Prior to the amendment, the agreement provided for a
total commitment of $47,000,000. The Company’s ability to borrow
under the facility was determined using an availability formula based on
eligible assets. The facility was 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. The most significant of the amended financial covenants,
amended in October 2006, includes compliance with a pre-defined annual maximum
capital expenditure amount and a restriction on the payment of
dividends. For all periods presented, the Company was in compliance
with all covenants, as amended. This credit agreement provides for a
performance-pricing structured interest charge which was based on excess
availability levels. The interest rate ranged from the bank’s base
rate (7.75% as of September 30, 2007) or a LIBOR loan rate plus a margin ranging
up to 1.75% (6.88% as of September 30, 2007). The Company had
$36,124,000 in borrowings as of September 30, 2007. The Amended
Credit Agreement expires in October 2011. At September 30, 2007, the
Company had approximately $1,197,000 of outstanding letters of credit expiring
through October 2008, which includes a $1,000,000 stand-by letter of credit
related to a promissory note entered in conjunction with the acquisition of
Footworks in 2005.
Long-term
Borrowings
Notes
Payable
On
April
3, 2007, the Company entered into a Convertible Note Purchase Agreement with
certain purchasers, including some officers of the Company, pursuant to which
the Company issued and sold $18.5 million of 8.375% Convertible Notes (“Note” or
“Notes”) due March 31, 2012, interest payable quarterly. $3.0 million of the
Notes were sold to management. The Notes are convertible into fully paid and
nonassessable shares of the Company’s common stock to an aggregate of up to
1,027,777 shares at any time after the issuance date, at an initial conversion
price of $18.00 per share. Any time after the eighteen month
anniversary of the issuance date, the Company has the right to require the
holder of a Note to convert any remaining amount under a Note into common stock
if: (i) (x) the closing sale price of the common stock exceeds 175% of the
conversion price on the issuance date for each of any 20 consecutive trading
days or (y) following the consummation of a bona fide firm commitment
underwritten public offering of the common stock resulting in gross proceeds
to
the Registrant in excess of $30 million, the closing sale price of the common
stock exceeds 150% of the conversion price on the issuance date for each of
any
20 consecutive trading days and (ii) certain equity conditions have been met.
In
circumstances where Notes are being converted either in connection with a
voluntary conversion or an exercise of the Company’s right to force conversion,
the Company has the option to settle such conversion by a net share settlement,
for some or all of the Notes. If it exercises such right, the Company is to
pay
the outstanding principal amount of a Note in cash and settle the amount of
equity in such Investor’s conversion right by delivery of shares of common stock
of equal value. If the Notes are not converted before its maturity,
the Notes will be redeemed by the Company on the maturity date at a redemption
price equal to 100% of the principal amount of the Notes then outstanding,
plus
any accrued and unpaid interest. The offer and sale of the notes were made
in
accordance with Rule 506 of Regulation D of the Securities Act of
1933. The net proceeds from the sale of the Notes were $17,132,000
after debt issuance costs. Such proceeds of this offering were used
to reduce the outstanding balance of Company’s line of credit. On
June 21, 2007, the Company filed an S-3 Registration Statement to register
the
1,027,777 shares of common stock which are convertible under the agreement
and
it became effective in September 2007.
On
May 9,
2007, the Company purchased from the officers of the Company all of the vested
employee stock options held by them that would otherwise have expired on or
before May 9, 2008. Options for a total of 245,000 shares were purchased from
five officers (no options were purchased from the CEO, Andrew
Feshbach). The purchase price was $16.00 per share, less the exercise
price of the options, which ranged from $6.50 to $10.00 per
share. The $16.00 price represents a discount of approximately 5%
from the May 9, 2007 closing price of $16.80. The net purchase price
was $1,965,000. The Company paid for the options by delivery of notes
bearing interest at 7% per annum and payable in two equal installments on April
10, 2008 and April 10, 2009. At September 30, 2007, $982,000 of the notes is
classified as current portion of long-term debt to related parties in the
accompanying consolidated balance sheet.
In
conjunction with the Company’s acquisition of Footworks in 2005, Wells Fargo
Retail Finance issued a $3,000,000 four-year term loan
facility. Monthly payments of $55,555 were due beginning in March of
2006 with the balance due at the maturity date of the loan, October
2009. The term loan interest charge is Prime plus .5% or LIBOR plus
2.75% (8.25% as of September 30, 2007). At September 30, 2007,
$667,000 of the term loan facility is classified as current and is included
in
current portion of long-term debt in the accompanying consolidated balance
sheet.
Additionally,
in conjunction with the acquisition of Footworks, the Company also entered
into
a $3,000,000 three-year promissory note with the seller, Bianca of Nevada,
Inc. The principal on this note is payable in three annual
installments beginning August 31, 2006. The note bears an interest
rate of 5.0% and accrued interest is payable quarterly beginning December
2005. The note is partially secured by a $1,000,000 stand-by letter
of credit as the second principal installment was paid in August
2007. At September 30, 2007, $1,000,000 of the promissory note is
classified as current and is included in current portion of long-term debt
in
the accompanying consolidated balance sheet.
As
part
of the acquisition of The Walking Company in 2004, TWC assumed priority tax
claims totaling approximately $627,000. The Bankruptcy Code requires
that each holder of a priority tax claim 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, 2007 and December 31, 2006, $51,000 and
$60,000, respectively, of the priority tax claim note is classified as current
and is included in current portion of long-term debt in the accompanying
consolidated balance sheet. As of September 30, 2007 and December 31,
2006, the remaining notes had a balance of $4,000 and $52,000,
respectively.
Capital
Lease
In
the
first quarter 2007, the Company entered into a $2,973,000 four-year capital
lease agreement to finance equipment purchased for the Company’s new
distribution center located in North Carolina. The capital lease
agreement requires monthly payments of approximately $75,000 through March
2011
and includes a dollar purchase option at the end of the
term. Depreciation expense of equipment purchased under this capital
lease is included in selling, marketing and distribution expense in the
accompanying consolidated statement of operations.
Note
4. Accounting for Stock-based Compensation
On
January 1, 2006, the Company adopted the provisions of Financial Accounting
Standards Board Statement No. 123R,
Share-Based Payment
(“SFAS 123R”).
This statement establishes standards surrounding the accounting for transactions
in which an entity exchanges its equity instruments for goods or services.
The
statement focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions, such as the
options issued under the Company’s Stock Option Plans. The statement provides
for, and the Company has elected to adopt the standard using the modified
prospective application under which compensation cost is recognized on or after
the required effective date for the fair value of all future share based award
grants and the portion of outstanding awards at the date of adoption of this
statement for which the requisite service has not been rendered, based on the
grant-date fair value of those awards calculated under FASB Statement No. 123
for pro forma disclosures. The Company’s stock option compensation expense was
$40,000 and $127,000 for the three and nine month periods ended September 30,
2007, respectively, and is included in operating expenses on the accompanying
Consolidated Statement of Operations. The Company also recorded a related
$15,000 and $48,000 deferred tax benefit for the three and nine month periods
ended September 30, 2007, respectively.
Prior
to
January 1, 2006, the Company accounted for its stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
No.
25, “Accounting for Stock Issued to Employees,” and related interpretations. No
stock-based employee compensation cost was reflected in net loss, as all options
granted under those plans had an exercise price equal to the market value of
the
underlying common stock on the date of grant. The Company recorded a $37,000
and
$1,165,000 tax benefit for the three and nine month periods ended September
30,
2007, respectively, primarily related to the exercise of stock options for
which
no compensation expense was recorded.
The
fair
value of each option is estimated on the date of grant using the Black-Scholes
option-pricing model. This model incorporates certain assumptions for inputs
including a risk-free market interest rate, expected dividend yield of the
underlying common stock, expected option life and expected volatility in the
market value of the underlying common stock. Expected volatilities are based
on
the historical volatility of the Company’s common stock. The risk
free interest rate is based upon quoted market yields for United States Treasury
debt securities. The expected dividend yield is zero as the Company is subject
to a debt covenant prohibiting the payment of dividends. Expected
term is derived from the historical option exercise behavior. The
forfeiture rate is determined based on the Company’s actual historical option
forfeiture experience. There were no options granted in the three or
nine months ended September 30, 2007 and 2006.
The
following table summarizes stock
option activity during the three and nine month period ended September 30,
2007:
|
|
|
Shares
|
|
|
Weighted-
Average Exercise Price
|
|
|
Weighted-
Average Remaining Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding
at December 31, 2006
|
|
|
1,891,866
|
|
|
$
|
5.39
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(209,544
|
)
|
|
|
(5.56
|
)
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(252,066
|
)
|
|
|
(7.91
|
)
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2007
|
|
|
1,430,256
|
|
|
$
|
4.55
|
|
|
|
4.58
|
|
|
$
|
15,696,000
|
|
|
Vested
and expected to vest at September 30, 2007
|
|
|
1,413,171
|
|
|
$
|
4.55
|
|
|
|
4.56
|
|
|
$
|
15,507,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2007
|
|
|
1,259,406
|
|
|
$
|
4.56
|
|
|
|
4.31
|
|
|
$
|
13,801,000
|
|
The
total
intrinsic value of options exercised during the three and nine month periods
ended September 30, 2007 was $226,000 and $2,197,000, respectively, determined
as of the date of option exercises. The total intrinsic value of options
exercised during the three and nine month periods ended September 30, 2006
was
$118,000 and $1,010,000, respectively. The intrinsic value is the amount by
which the current market value of the underlying common stock exceeds the
exercise price of the stock option.
As
of
September 30, 2007, there was $240,000 of total unrecognized compensation cost,
net of a 10% expected forfeiture rate, related to unvested options granted
under
the Company’s option plans. That cost is expected to be recognized over a
weighted average period of 0.9 years. The total fair value of shares vested
during the three and nine month periods ended September 30, 2007 was $86,000
and
$190,000, respectively. The total fair value of shares vested during the three
and nine month periods ended September 30, 2006 was $218,000 and $4,084,000,
respectively.
Cash
received from option exercises under share-based payment arrangements for the
three and nine months ended September 30, 2007 was $138,000 and $1,165,000,
respectively. Cash received from option exercise under share-based payment
arrangements for the three and nine months ended September 30, 2006 was $136,000
and $749,000, respectively.
On
May 9,
2007, the Company purchased from the officers of the Company all of the vested
employee stock options held by them that would otherwise have expired on or
before May 9, 2008. Options for a total of 245,000 shares were purchased from
five officers (no options were purchased from the CEO, Andrew
Feshbach). (See further discussion in Note 3. Debt.)
NOTE
5.
Stockholders’ Equity
In
March
1998, the Company announced that its Board authorized the repurchase of up
to
$10,000,000 of its common stock. As of September 30, 2007, the
Company had repurchased 1,710,598 shares totaling $9,446,000.
On
April
3, 2007, the Company entered into and closed a convertible note agreement with
certain purchasers selling $18.5 million aggregate principal amount of 8.375%
convertible notes due 2012, interest payable quarterly. Such notes
are convertible into an aggregate of up to 1,027,777 shares of the Company’s
common stock. (See further discussion in Note 3. Debt.)
NOTE
6. Segment Information
The
Company currently has two reportable segments: (i) Big Dog Sportswear business,
and (ii) The Walking Company business.
The
Big
Dog Sportswear business includes the Company’s 138 Big Dogs 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 165 The Walking Company stores
located primarily in leading retail malls. Stores acquired in the
Footworks and Steve’s Shoes, Inc. acquisitions are included in The Walking
Company.
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. Overhead costs attributable to both
subsidiaries are accumulated and then allocated to each subsidiary based on
operational usage. Management periodically reviews and adjusts the
allocation to ensure an equitable distribution between the subsidiaries. Below
are the results of operations on a segment basis for the three and nine months
ended September 30, 2007 and 2006:
|
|
|
Big
Dog Sportswear
|
|
|
The
Walking Company
|
|
|
Total
|
|
|
Three
months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
19,643,000
|
|
|
$
|
36,911,000
|
|
|
$
|
56,554,000
|
|
|
Net
(Loss) Income
|
|
$
|
419,000
|
|
|
$
|
(558,000
|
)
|
|
$
|
(140,000
|
)
|
|
Total
Assets
|
|
$
|
106,830,000
|
|
|
$
|
97,188,000
|
|
|
$
|
139,223,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
48,776,000
|
|
|
$
|
107,856,000
|
|
|
$
|
156,632,000
|
|
|
Net
Loss
|
|
$
|
(2,417,000
|
)
|
|
$
|
(2,045,000
|
)
|
|
$
|
(4,462,000
|
)
|
|
Total
Assets
|
|
$
|
106,830,000
|
|
|
$
|
97,188,000
|
|
|
$
|
139,223,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big
Dog Sportswear
|
|
|
The
Walking Company
|
|
|
Total
|
|
|
Three
months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
23,391,000
|
|
|
$
|
30,736,000
|
|
|
$
|
54,127,000
|
|
|
Net
Income
|
|
$
|
464,000
|
|
|
$
|
7,000
|
|
|
$
|
471,000
|
|
|
Total
Assets
|
|
$
|
39,694,000
|
|
|
$
|
68,516,000
|
|
|
$
|
108,210,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
56,264,000
|
|
|
$
|
89,711,000
|
|
|
$
|
145,975,000
|
|
|
Net
Loss
|
|
$
|
(1,847,000
|
)
|
|
$
|
(201,000
|
)
|
|
$
|
(2,048,000
|
)
|
|
Total
Assets
|
|
$
|
39,694,000
|
|
|
$
|
68,516,000
|
|
|
$
|
108,210,000
|
|
NOTE
7.
Recently Issued Accounting Standards
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 159,
The Fair Value
Option for Financial Assets and Financial Liabilities—including an amendment of
FASB Statement No. 115
. This standard permits an entity to measure many
financial instruments and certain other assets and liabilities at fair value
on
an instrument-by-instrument basis. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company does not expect the adoption
of
this statement to have a material effect on its consolidated financial position,
results of operations or cash flows.
In
September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
.
SFAS No. 157 establishes a framework for measuring the fair value of assets
and
liabilities. This framework is intended to increase consistency in how fair
value determinations are made under various existing accounting standards that
permit, or in some cases require, estimates of fair market value. SFAS No.
157
also expands financial statement disclosure requirements about a company’s use
of fair value measurements, including the effect of such measures on earnings.
SFAS No. 157 is effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company does not expect
the
adoption of this statement to have a material effect on its consolidated
financial position, results of operations or cash flows.
In
July
2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes – an Interpretation of FASB Statement No. 109,
(“FIN
48”)
.
FIN 48 creates a single model to address accounting for
uncertainty in tax positions and clarifies the accounting for income taxes,
by
prescribing a minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides
guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The cumulative effect,
if
any, of adopting FIN 48 is recorded in retained earnings. The adoption of this
statement did not have a material effect on the Company’s financial position,
results of operations or cash flows.
Effective
January 1, 2007, the Company adopted FSP No. FIN 48-1, “Definition of Settlement
in FASB Interpretation No. 48,” (FSP FIN 48-1), which was issued on May 2, 2007.
FSP FIN 48-1 amends FIN 48 to provide guidance on how an entity should determine
whether a tax position is effectively settled for the purpose of recognizing
previously unrecognized tax benefits. The term “effectively settled” replaces
the term “ultimately settled” when used to describe recognition, and the terms
“settlement” or “settled” replace the terms “ultimate settlement” or “ultimately
settled” when used to describe measurement of a tax position under FIN 48. FSP
FIN 48-1 clarifies that a tax position can be effectively settled upon the
completion of an examination by a taxing authority without being legally
extinguished. For tax positions considered effectively settled, an entity would
recognize the full amount of tax benefit, even if the tax position is not
considered more likely than not to be sustained based solely on the basis of
its
technical merits and the statute of limitations remains open. The adoption
of
FSP FIN 48-1 did not have an impact on the accompanying consolidated financial
statements.
There
are
no other accounting standards issued as of August 7, 2007 that are expected
to
have a material impact on the Company’s consolidated financial
statements.
NOTE
8.
(Loss) Earnings per Share
Basic
(loss) earnings per share is computed by dividing net (loss) earnings by the
weighted average number of common shares outstanding for the period. Diluted
(loss) earnings per share reflects the potential dilution that could occur
if
options were exercised or converted into common stock. Shares attributable
to
the exercise of outstanding options or conversion of convertible notes that
are
anti-dilutive are excluded from the calculation of diluted loss per
share.
For
the
three months ended September 30, 2007 and 2006, stock options of 1,430,000
and
1,000, respectively, were excluded from the computation of diluted (loss)
earnings per share. For the nine months ended September 30, 2007 and
2006, stock options of 1,430,000 and 1,989,000, respectively, were excluded
from
the computation of diluted (loss) earnings per share.
The
Company’s convertible notes (See Note 3. Debt) contain a feature with an initial
conversion price of $18 per share into an aggregate of up to 1,027,777 shares
of
the Company’s common stock, which are excluded from the computation of diluted
loss per share.
NOTE 9.
Income Taxes — Implementation of FIN 48
On
January 1, 2007, the Company adopted the provisions of FIN 48 (see
Note 7)
.
As a result of adoption, the Company did not record any
initial amount for previously unrecognized tax liabilities. The Company does
not
expect the amounts of unrecognized benefits to change significantly in the
next
12 months.
As
of
September 30, 2007, the Company did not recognize any additional estimated
liability.
Although
no adjustments were recorded as of September 30, 2007, effective with the
adoption of FIN 48, the Company will record any future accrued interest
resulting from unrecognized tax benefits as a component of interest expense
and
accrued penalties resulting from unrecognized tax benefits as a component
of
income tax expense.
The
Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various state jurisdictions. The Company’s Federal and State
income tax returns remain subject to examination for all tax years ended
on or
after December 31, 2000, with regard to all tax positions and the results
reported.
On
March
14, 2006, the Company received a notice of proposed adjustments from the
Internal Revenue Service ("IRS”) related to its audit of the Company’s 2002 Tax
Year. The IRS had proposed adjustments to increase the Company’s
income tax payable for the 2002 year that was under examination. The
adjustments related to the tax accounting for two short bond transactions
recorded in 2002. The Company disagreed with the audit findings and
obtained expert legal tax counsel to assist in its appeal. In
September 2007, the Company received a notice from the IRS Appeals Office
stating that they agreed with the Company’s appeal and there is no deficiency or
over-assessment with regard to the audited year. The Company had not
recorded a reduction in tax benefits in accordance with FIN 48 related to this
audit. Since the audit is now resolved as such, no further analysis
or adjustment is needed.
NOTE
10. Legal Contingency
In
April,
2007, Marlene Korman filed suit against The Walking Company (TWC) in the United
States District Court for the Eastern District of Pennsylvania. The
suit claims a violation of the Fair and Accurate Credit Transactions Act
(FACTA)in regard to electronically printed receipts previously used at TWC's
Oxford Valley, Pennsylvania store. The suit is brought a class action
on behalf of certain other customers of TWC’s Oxford Valley store, though the
Plaintiff's ability to bring such suit a class action has not yet been certified
by the court. The complaint seeks statutory damages, injunctive relief, costs
and attorneys fees. We are vigorously defending the action and
believe we have substantial defenses. Although we cannot predict the
outcome of this matter, we do not believe it will have a material adverse effect
on our results of operations or financial condition.
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