24

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                    FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
             ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NUMBER: 0-22963

                             BIG DOG HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                            -------------------------

       DELAWARE                                         52-1868665
       --------                                         ----------
(STATE OR OTHER JURISDICTION OF               (I.R.S. EMPLOYER INCORPORATION
       OR ORGANIZATION)                             IDENTIFICATION NO.)

121 GRAY AVENUE, SANTA BARBARA, CALIFORNIA                93101
------------------------------------------                -----
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                (ZIP CODE)

                                 (805) 963-8727
               (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.01
par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act.)
         Yes               No X
             ----            ----

         The aggregate market value of Common Stock held by non-affiliates of
the registrant on March 1, 2004 was approximately $8,271,000. All outstanding
shares of Common Stock, other than those held by executive officers, directors
and 10% shareholders, are deemed to be held by non-affiliates.

         On March 1, 2004, the registrant had 8,243,132 shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III incorporates information by reference from the definitive
Proxy Statement for the 2004 Annual Meeting of Shareholders, to be filed with
the Commission no later than 120 days after the end of the registrant's fiscal
year covered by this Form 10-K.


<PAGE>












                      (THIS PAGE INTENTIONALLY LEFT BLANK)














<PAGE>


                                     PART I

ITEM 1.  BUSINESS

         Unless the context indicates otherwise, when this Annual Report on Form
10-K refers to "we," "us" or "the Company," we are referring to Big Dog
Holdings, Inc. and its subsidiaries on a consolidated basis.

         The following discussion should be read in conjunction with the audited
financial statements and notes thereto included elsewhere in this Annual Report
on Form 10-K.

GENERAL

         Big Dog Holdings, Inc. is the parent company of Big Dog USA, Inc. ("Big
Dogs"). Big Dogs develops, markets and retails a branded, lifestyle collection
of unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. BIG DOGS(R) is an All-American,
family-oriented brand that we believe has established a unique niche in its
dedication to providing quality, value and fun. Big Dogs products were first
sold in 1983, and operations remained limited through 1992 when the current
controlling stockholders acquired the BIG DOGS(R) brand and related assets.
Following the acquisition, we initiated a strategy of leveraging the brand
through dramatic expansion of our product line and rapid growth in our retail
stores. The number of our stores has grown from 5 in 1993 to 203 as of December
31, 2003. After early years of rapid growth, we reached a level of maturity in
the number of our stores and breadth of our product line. In recent years we
have focused on profitability and brand management.

         Our products are centered around the signature BIG DOGS(R) name, logo
and "Big Dog" characters and are designed to appeal to a broad range of
customers. The BIG DOGS(R) brand conveys a sense of fun, humor and a "Big Dog
attitude," whereby each customer can feel that he or she is a "Big Dog." The Big
Dog attitude and sense of fun are brought to life through our graphic
capabilities that portray the Big Dog characters in a number of engaging,
positive and inspiring situations and activities. The Big Dog attitude is
further defined by a number of slogans such as "If You Can't Run with the Big
Dogs Stay on the Porch"(R), "Large and In Charge" and "Attitude is Everything."
These graphics and slogans combine a bold, spirited attitude with wry,
lighthearted humor. The appeal of the brand is further strengthened through a
customer's personal identification with particular sports and other activities
depicted in these graphics. In addition to our focus on fun, Big Dogs develops
customer loyalty and enhances its brand image by providing a consistently high
level of quality at moderate price points. We accomplish this primarily through
(i) selling our own brand directly to the consumer, (ii) low-cost product
development, and (iii) sourcing high-volume/low-cost basic apparel with limited
fashion risk.

         The BIG DOGS(R) brand is designed to appeal to men, women and children
of all ages, particularly baby boomers and their kids, especially when they are
engaged in leisure or recreational activities. Furthermore, we believe the
millions of dog and other pet owners in the United States, as well as children,
have a strong natural affinity toward the dog-related images and themes in Big
Dogs graphics. In addition, we believe the positive image the brand brings to
being a "Big Dog" has a special appeal to large-size customers. We develop our
apparel products, which include a wide variety of basic apparel and related
products, with an emphasis on being functional rather than fashion-forward or
trendy. These apparel products include graphic T-shirts, shorts, knit and woven
shirts, fleece items, loungewear and boxer shorts. In addition to its BIG
DOGS(R) line of activewear and casual sportswear for men and women, we have a
LITTLE BIG DOGS(R) line of infants' and children's apparel and a BIG BIG DOGS(R)
line of big-size apparel. We also sell a line of non-apparel products, including
plush animals, stationery and pet products, which feature Big Dog graphics and
are developed to complement our apparel.

         We reinforce our brand image by distributing BIG DOGS(R) products
primarily through our own retail stores. This distribution strategy enables us
to present a complete selection of our merchandise in a creative and fun
environment. In addition, this strategy enables us to more effectively reach our
target customers by locating stores in tourist-oriented and other casual
environments where we believe our products have their highest appeal. We operate
our retail stores primarily in outlets, tourist locations and value-oriented
shopping environments. In addition to our retail stores, we market our products
through other channels, including our catalog, better wholesale and corporate
accounts, website and licensing opportunities.


RECENT DEVELOPMENTS

         In December 2003, Big Dogs acquired the assets of LFI Sportswear, Inc.
d/b/a Lifeforms, previously a small manufacturer and wholesaler of graphic
apparel featuring t-shirts and related items sold to men, women and children.
The assets are a substantial library of animal-themed graphics, similar to the
BIG DOGS brand. The Company acquired Lifeforms for $45,000, which is classified
as an intangible asset in the consolidated balance sheet at December 31, 2003.
Lifeforms had previously distributed its product nationally through better
department stores and specialty stores. Lifeforms is being
integrated into the operations of Big Dogs, and will be operated as a division
of that company. The Company does not expect the Lifeforms division to
contribute significant sales for the Company until 2005.

         In March 2004, the Company, through a newly formed subsidiary, acquired
substantially all of the assets of The Walking Company out of bankruptcy. The
Walking Company is the leading specialty retailer of authentic comfort footwear,
operating over 70 specialty stores in premium malls across the nation. The
Walking Company sells high-quality, technically designed walkwear and
accessories from around the world to both men and women.

BUSINESS OF BIG DOGS

         Business Strategy

         PROMOTE THE BIG DOG SPIRIT OF FUN. A key and unique element in our Big
Dogs brand image is the focus on fun. This spirit of fun revolves around our Big
Dog character that has broad appeal to men, women and children of all ages. We
foster this spirit by creating positive, humorous, topical and inspiring
graphics and slogans that we apply to our merchandise. More than just a logo,
"the Big Dog" represents the leader, athlete, child, comedian, musician, boss,
traveler, parent and dog lover that a wide range of customers can identify with.
Big Dog products are fun, not only because of their graphics and slogans, but
also because they are designed for recreational, sports and leisure activities
and make ideal gifts. Our focus on fun is further enhanced by the lively,
enjoyable atmosphere in our retail stores and is also reflected in our catalog,
website and marketing promotions and activities.

         DELIVER HIGH QUALITY AT A GOOD VALUE. Big Dogs' products are
constructed using high-quality fabrics and other materials. Many of our products
feature unique graphics characterized by advanced print techniques, as well as
unique appliques and embroideries on many of our apparel products. We believe
this combination of quality fabrics and graphics in our apparel products
provides the customer with a product that has an exceptional look and feel. We
are able to deliver this level of quality at reasonable prices primarily as a
result of (i) selling our own brand direct to the consumer, (ii) low-cost
product development, (iii) sourcing of basic apparel, and (iv) low marketing
costs. We believe that delivering quality and value is instrumental in
generating customer appeal and brand loyalty for our products, particularly
those that do not prominently feature Big Dog graphics.

         ENHANCE FUNCTIONAL PRODUCTS WITH GRAPHICS. Big Dogs develops functional
rather than fashion-forward products. We believe we have a special competency in
creating distinctive, popular graphics which we use to differentiate our
products from those of our competitors. We have developed a broad assortment of
classic, functional clothing ("basics") in traditional, less fashion-forward
colors. Our focus on basics and our ability to leverage our graphics across
multiple product categories have allowed us to eliminate the need for a
traditional buyer or design staff, and thereby lower our product development
costs compared to most fashion apparel companies. Furthermore, since our
graphics are added in the last stage of production, we are able to be more
responsive to customer preferences while also lowering our inventory risk.

         TARGET A BROAD, DIVERSE CUSTOMER BASE. We believe we have established
Big Dogs as an All-American, family-oriented brand featuring products, graphic
themes, slogans and promotions that appeal to a broad range of consumers.
Although our marketing focus is on baby boomers and their kids, our customers
include men, women and children of all ages, who span a wide range of geographic
areas and income levels. Furthermore, we believe that the millions of dog and
other pet owners in the United States, as well as children, have a strong
natural affinity for the dog-related images and themes in Big Dogs graphics. In
addition, we believe that the positive image the brand brings to being a "Big
Dog" has a special appeal to big-size customers.

         MAINTAIN CONTROLLED DISTRIBUTION. We sell our products primarily
through our own stores and, to a lesser extent, through our catalog and website.
By selling direct to customers, we are able to present our complete line of
merchandise in a creative and fun environment. This also allows us to target our
customers more precisely by locating stores in tourist-oriented and other
high-traffic areas where we believe consumers are more likely to be of the mind
to purchase Big Dogs' fun, casual apparel. Selling direct to the consumer also
allows us (i) to enhance our margins while still providing customer value, (ii)
to be more responsive to customer feedback, especially with regard to new
product development, (iii) to reduce the need to build brand awareness through
large-scale media advertising, and (iv) to collect customer names for our
catalog through in-store sign-ups.

         CREATE AN ENTERTAINING SHOPPING EXPERIENCE. Big Dogs seeks to create a
distinctive and fun shopping environment in its stores through an innovative
display of our graphic art and humor, including in-store "T-shirt walls" and
other displays designed to immediately put the customer in a relaxed, fun state
of mind. By showcasing our complete product line, Big Dogs stores offer
something for everyone in the family. Effective cross-merchandising in the
stores is designed to add excitement and prompt add-on purchases. We believe the
customer's shopping experience is further enhanced by our knowledgeable and
enthusiastic sales staff.

         EMPHASIZE GRASSROOTS MARKETING. We believe Big Dogs' most effective
marketing is by the products themselves and their presentation in our retail
stores, catalog and website. As a result, we have spent relatively little on
advertising. Also important to our marketing strategy is our targeted
"grassroots" marketing activities. These activities include local and charity
sponsorships (such as high school sports teams) and community-oriented
promotional events (such as the Company's annual dog parade in Santa Barbara).

         Merchandising

         The Big Dogs product line features a branded, lifestyle collection of
unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. Our apparel lines include full
collections of classic unisex casual sportswear and activewear for adults, as
well as collections for infants and children and the big-size market. We
continuously explore opportunities to further leverage our brand and graphics
into new product lines.

         Our apparel products are manufactured from premium cotton, or, in some
instances, cotton/ synthetic blends. Big Dogs' apparel is characterized by
quality fabrics, construction and embellishments, and is distinguished from
other apparel lines by the BIG DOGS(R) name, dog logo, graphics and slogans. In
addition to our distinctive graphics, we believe we have achieved recognition
for the quality and performance of our products.

         The majority of our products range from between $4 and $45. The
following table sets forth the approximate contribution that each of our product
categories made to total net sales in our retail stores for the year ended
December 31, 2003:
<TABLE>

                                                                         % OF RETAIL STORE* NET SALES
                                                                            YEARS ENDED DECEMBER 31,
                                                                               2003     2002     2001
                                                                               ----     ----     ----
                  <S>                                                          <C>     <C>      <C>
                  Adult Apparel and Accessories ...............................53.0%    51.8%    52.6%
                  Big-size Apparel ............................................22.8     22.6     21.4
                  Infants' and Children's Apparel and Accessories .............18.7     20.4     20.7
                  Non-Apparel Products ........................................ 5.5      5.2      5.3
                                                                                ---      ---      ---

                           Total .............................................100.0%   100.0%   100.0%
                                                                              =====    =====    =====

                  *Does not include catalog, wholesale and internet sales, which are skewed toward larger sizes.
</TABLE>

         ADULT APPAREL AND ACCESSORIES. Big Dogs sells a complete line of adult
unisex activewear and casual sportswear. We offer screen-printed and embroidered
T-shirts and sweatshirts, in a variety of styles and colors that prominently
display the Big Dogs graphics and slogans. In addition, we offer shorts, knit
and woven casual shirts, fleece tops and bottoms, loungewear, boxer shorts,
swimwear and sleepwear, all of which feature print designs or simply the BIG
DOGS(R) name and/or dog logo. Our adult apparel line primarily focuses on basic
items that recur with relatively minor variation from season-to-season and
year-to-year. While certain of our classic, popular items and graphics have been
in the Big Dogs line with very little change for over 10 years, we introduce new
apparel and other products throughout the year to ensure that the merchandise
assortments are consistent with the top sellers within our competitive market.

         We leverage the Big Dogs trademarks, characters and more popular
graphics by carefully translating them to a wide variety of apparel accessories,
including caps, socks, sunglasses, bags, and wallets. These products are
developed and introduced based on their consistency with Big Dog's brand image
and whether they complement our other products. Our accessories not only provide
an opportunity to create add-on purchases, but also minimize product development
costs and inventory risk by utilizing graphics and slogans that have first
proven popular on our graphic T-shirts.

         BIG-SIZE APPAREL. We believe the BIG DOGS(R) image and the positive
emphasis the brand gives to being a "Big Dog" have a unique appeal to consumers
who wear big sizes. Our BIG BIG DOGS(R) category offers a line of unisex
activewear and casual sportswear. As with the regular adult sizes, this category
features screen-printed and embroidered T-shirts and sweatshirts, in a variety
of styles and colors that prominently display the Big Dogs graphic themes and
slogans. In addition, we offers shorts, knit and woven casual and sports shirts,
fleece tops and bottoms, loungewear, boxer shorts, swimwear and sleepwear, which
may feature print designs or simply the BIG DOGS(R) name and/or dog logo. We
sell our BIG BIG DOGS(R) line primarily through our retail stores, catalog and
website, and also through selected wholesale accounts.

         INFANTS' AND CHILDREN'S APPAREL AND ACCESSORIES. The LITTLE BIG DOGS(R)
line includes infants, toddlers, kids and youth sizes. Products in this line
include graphic T-shirts, shirts, fleece items, infant and toddler one-pieces,
boxer shorts, dresses and shorts, virtually all of which feature distinctive
graphics. The graphics and fabrics of this line are designed to mirror many of
the more popular graphics and fabrics in the BIG DOGS(R) adult line in order to
encourage family purchases and leverage overall product development costs. We
sell our LITTLE BIG DOGS(R) line primarily through our retail stores, catalog
and website, but also wholesale it to certain specialty and better department
stores.

         NON-APPAREL PRODUCTS. We further leverage our trademarks, characters
and more popular graphics by applying them to a wide variety of adult's and
children's non-apparel items, including pet products, plush animals and other
toys, sporting goods, stationery, calendars and lunch boxes. As with apparel
accessories, new non-apparel products are developed and introduced based on
whether they are consistent with Big Dogs' brand image and complement our other
products. As with apparel accessories, the graphics applied to these products
have first proven popular on our T-shirts, resulting in lower product
development costs and inventory risk. In general, non-apparel items have higher
gross margins than many of our other products.

         Marketing

         Big Dogs strives to maintain a consistent brand image through the
coordination of our merchandising, marketing and sales efforts. The goal of our
marketing efforts is to present a distinctive image of quality, value and fun
that consumers will associate with our products and thereby enhance the BIG
DOGS(R) brand image. The BIG DOGS(R) brand image has been developed with
relatively little advertising, as we believe it's most effective marketing is
its products themselves and their presentation in our retail stores, catalog and
website. Our catalog and website serve not only as a means of product
distribution, but also as key marketing pieces for our retail stores.

         Also important to our marketing strategy is our targeted "grassroots"
marketing activities. These activities include local and charity sponsorships
(such as high school sports teams) and community-oriented promotional events
(such as our annual dog parade in Santa Barbara). We train and incentivize our
store managers to actively involve their stores in local, grassroots activities.
In addition, we utilize billboard advertising designed to direct customers to
local Big Dogs retail stores.

         Retail Stores

         We seek to create a distinctive and fun shopping environment in Big
Dogs stores through the innovative display of our graphic art and humor,
including in-store "T-shirt walls" and other displays designed to immediately
put the customer in a fun, relaxed state of mind. In addition, our
cross-merchandising and colorful signages are designed to add excitement in the
stores and prompt add-on purchases. By showcasing our complete product line and
broad assortment, Big Dogs stores offer something for everyone in the family and
are particularly appealing to the dedicated Big Dogs customer.

         In 2003, our retail stores contributed approximately 93% of total net
sales. As of December 31, 2003, we operated a total of 203 stores, 201 stores in
42 states and 2 stores in Puerto Rico. Big Dogs stores are typically located in
tourist and recreation-oriented shopping locations and other casual environments
where the Company believes consumers are more likely to be in a fun, relaxed
state of mind. In making site selections, we also consider a variety of other
factors, including proximity to large population centers, area income, the
prestige and potential customer-draw of the other tenants in the center or area,
projected profitability, store location and visibility within the center, and
the accessibility and visibility of the center from nearby thoroughfares.

The table below sets forth the number of stores located in each state and
territory as of December 31, 2003:
<TABLE>

                      State            No. of Stores           State            No. of Stores
                      -----            -------------           -----            -------------
                   <S>                      <C>                 <C>                 <C>

                 Alabama                      1         Minnesota                      4
                 Alaska                       1         Mississippi                    3
                 Arizona                      7         Missouri                       7
                 California                  36         Nevada                         3
                 Colorado                     5         New Hampshire                  2
                 Connecticut                  1         New Jersey                     2
                 Delaware                     3         New Mexico                     1
                 Florida                     14         New York                       5
                 Georgia                      6         North Carolina                 6
                 Hawaii                       1         Ohio                           3
                 Idaho                        2         Oklahoma                       2
                 Illinois                     4         Oregon                         6
                 Indiana                      4         Pennsylvania                   7
                 Iowa                         2         South Carolina                 6
                 Kansas                       3         South Dakota                   1
                 Kentucky                     1         Tennessee                      7
                 Louisiana                    2         Texas                          10
                 Maine                        2         Utah                           3
                 Maryland                     6         Virginia                       4
                 Massachusetts                3         Washington                     5
                 Michigan                     6         Wisconsin                      4

                    U.S. Territory      No. of Stores
                    --------------      -------------
                 Puerto Rico                  2
</TABLE>



         We operate Big Dogs retail stores primarily in outlet malls. Big Dogs'
traditional emphasis has been on outlet malls because those malls are often
located in tourist areas and attract significant numbers of Big Dogs' targeted
customers. While the growth in the outlet industry has slowed in recent years,
we expect to continue opening stores in new quality outlet malls as they are
opened to the extent they meet our requirements.

         Our outlet mall stores average approximately 2,800 square feet. Our
outlet stores offer a complete and current line of our products priced
approximately 25% less than the same items are sold for in our catalog and
website, our full-price stores and by other retailers. We opened 7 new stores,
of which 3 were temporary stores, and closed 13 under-performing stores during
2003. Our cost to open a store in 2003, including leasehold improvements and
furniture and fixtures, was approximately $48,000 (net of tenant improvement
allowances paid to us by landlords). The average per store initial inventory
(partially financed by trade payables) for the new 2003 stores was approximately
$73,000 and pre-opening expenses averaged approximately $12,000 per store.

         Our store operations are managed by a Senior Vice President-Retail,
Director of Retail Operations, two regional managers and approximately 14
district and area managers. Each of the stores is managed and operated by a
store manager, an assistant manager and full-time and part-time sales
associates. We seek to further enhance our customers' shopping experience by
developing a knowledgeable and enthusiastic sales staff to distinguish Big Dogs
from its competition. In this regard, we have implemented employee training and
incentive programs and encourage our sales associates to be friendly and
courteous and to guide customers to graphics and products that tie into their
individual interests. We believe our commitment to customer service enhances our
ability to generate repeat business and to attract new customers. We also
believe that the fun nature of our products create employee enthusiasm and
positive morale that in turn enhance customer service and contribute to the fun
shopping experience.

         Non-Retail Distribution

         Non-retail distribution channels, which include catalog and internet,
and wholesale and corporate sales, represented approximately 7% of our total net
sales in 2003.

         CATALOG AND INTERNET. In addition to generating their own sales, our
catalog and website serve as key marketing pieces for our products and stores.
Our catalog and Internet sales in 2003 were approximately $5.2 million, or
approximately 5% of total net sales. Such sales have had growth in recent years,
on a relatively small base. We have the benefit of being able to develop names
for our mailing list through our retail store chain, which has been the primary
source for such list.

         WHOLESALE AND CORPORATE SALES. Big Dogs wholesale sales in 2003 were
approximately $2.2 million, or approximately 2% of total net sales.

         Sourcing

         DOMESTIC AND INTERNATIONAL SOURCING. Big Dogs does not own or operate
any manufacturing facilities but instead source our products through third-party
contractors with manufacturing facilities that are primarily overseas and to a
limited extent, in Central America. We believe that outsourcing allows us to
enhance production flexibility and capacity, while substantially reducing
capital expenditures and avoiding the costs of managing a large production
workforce. In addition, outsourcing allows us to leverage working capital,
transfer risk and focus our energy and resources on merchandising, marketing and
sales.

         Big Dogs' domestic sourcing is primarily limited to graphic T-shirts.
Our graphic T-shirt business is managed in-house. This includes management of
screen printing art and blanks, but not the actual screen-printing operations
which are outsourced. The majority of our other products, excluding T-shirts,
are manufactured overseas, primarily in Asia, the Middle East and Turkey. In
order to reduce our exposure to production risks and delays arising from trade
disputes, political disruption or other factors relating to any one vendor or
country, we utilize a diverse group of vendors. We source the majority of our
product from trading companies. Through these trading companies and directly, we
source from approximately 65 unaffiliated vendors, including over 35 foreign
vendors in a number of countries. In order to enhance our sourcing flexibility,
we use trading companies rather than operate our own foreign sourcing office.
These trading companies assist us in selecting and overseeing third-party
vendors, sourcing fabric and monitoring quotas and other trade regulations. We
do not have supply contracts with any of our suppliers. Although the loss of
major suppliers could have a significant effect on our immediate operating
results, since we are focused on basic apparel, we believe alternate sources of
merchandise for most product categories are available at comparable prices and
that we could replace these suppliers without any long-term adverse effect.

         We forecast Big Dogs' production requirements to secure necessary
manufacturing capacity and quota. Since our foreign manufacturers are located at
greater geographic distances from us than our domestic manufacturers, we
generally allow greater lead-times for foreign orders. However, due to our focus
on widely available basics rather than fashion items, we believe these lead
times do not present significant risks.

         QUALITY CONTROL. Our quality control program is designed to ensure that
all goods bearing BIG DOGS(R) trademarks meet our standards. With respect to our
products, Big Dogs, through its employees and sourcing agents, develops and
inspects prototypes of each product prior to manufacture. For apparel products,
Big Dogs, through its employees and sourcing agents, inspects the prototypes and
fabrics prior to cutting by the contractors, establishes fittings based on the
prototype and inspects samples. We or our sourcing agents inspect the final
product prior to shipment to our warehouse or at the warehouse prior to payment.

BUSINESS OF THE WALKING COMPANY

         The Walking Company is the leading specialty retailer of authentic
comfort footwear. On March 3, 2004, 72 "The Walking Company" stores were
operating in premium malls across the nation. The Walking Company sells
high-quality, technically designed footwear and accessories from around the
world to both men and women, including such brands as ECCO(R), Mephisto(R),
Dansko(R), Merrell(R) and Birkenstock(R). The Walking Company had total annual
sales of $65 million in 2003 (excluding sales of stores closed in 2003 during
the bankruptcy process).

         The Walking Company was founded in 1991 and grew rapidly from a base of
20 stores in 1995 to over 100 stores in 2003. As a result of its rapid
expansion, The Walking Company made certain real estate and merchandising
missteps and eventually declared bankruptcy in July 2003. The bankruptcy process
allowed The Walking Company to reject its non-performing stores and liquidate
excess and obsolete inventory.

         Having purchased the assets of The Walking Company out of bankruptcy in
March 2004, the Company is now re-focusing The Walking Company's operations on
its original core business of operating specialty stores in premium malls
selling the best brands in the comfort shoe category. We acquired the business
of The Walking Company based on, among other factors, our favorable assessment
of its market niche, the favorable demographics of that market, and an
anticipated ability to realize efficiencies and increase profitability by
utilizing the retail store expertise of the Company and by consolidating The
Walking Company's corporate overhead operations with those of the Company. The
footwear products sold by The Walking Company appeal to a large and growing
demographic. There has been a shift both in and out of the workforce towards
more casual and comfortable footwear. In addition, The Walking Company
capitalizes on the trend toward fitness walking, which has become a leading
participation sport. Finally, with people living longer and becoming more
educated about health and fitness, The Walking Company is in a position to take
advantage of the aging population demographics. People over 50 represent the
fastest growing segment of the population in the U.S., and the number is
expected to continue to grow in the near future.

         We believe that The Walking Company presents a competitive advantage by
combining a unique product mix and broad customer appeal with a skilled retail
sales force providing a combination of product expertise, foot care and pain
relief knowledge. This value-added approach to selling differentiates The
Walking Company from much of its competition and is a model that cannot be
effectively replicated in the mass market.

The table below sets forth the number of The Walking Company stores located in
each state as of March 1, 2004:
<TABLE>

                          State            No. of Stores           State            No. of Stores
                          -----            -------------           -----            -------------
                        <S>                   <C>                   <C>                  <C>
                 Arizona                         1         Michigan                       3
                 California                     17         Minnesota                      1
                 Colorado                        2         Missouri                       1
                 Connecticut                     2         Nevada                         1
                 Delaware                        1         New Jersey                     2
                 District of Columbia            1         New York                       1
                 Florida                         5         North Carolina                 1
                 Georgia                         3         Ohio                           2
                 Hawaii                          2         Oregon                         3
                 Illinois                        2         Pennsylvania                   2
                 Indiana                         1         South Carolina                 1
                 Louisiana                       1         Texas                          1
                 Maryland                        2         Virginia                       4
                 Massachusetts                   5         Washington                     4
</TABLE>


         The Walking Company stores are primarily in leading regional malls that
attract significant numbers of its targeted customers. The Walking Company
stores are mostly in the size range of 1,300 to 1,800 square feet.

MANAGEMENT INFORMATION SYSTEMS

         The Company is committed to utilizing technology to enhance its
competitive position. We have put in place computer hardware, systems
applications and networks that are the same as those used by a number of large
retailers. These systems support the sales and distribution of products to our
stores and customers and improve the integration and efficiency of our domestic
and foreign sourcing operations. The Company's management information system
("MIS") provides integration of store, merchandising, distribution and financial
systems. These systems include stock keeping unit ("SKU") and classification
inventory tracking, purchase order management, open-to-buy, merchandise
distribution, automated ticket making, general ledger, sales audit, accounts
payable, fixed asset management, payroll and integrated financials. These
systems operate on an IBM AS 400 platform and a Microsoft NT server network and
utilize Island Pacific software. Our point-of-sale ("POS") system consists of
registers providing price look-up, e-mail and credit card and check
authorization. Through automated two-way communication with each store, sales
information, e-mail and timekeeping information are uploaded to the host system,
and receiving, price changes and systems maintenance are down-loaded through the
POS devices. Sales are updated daily in the merchandising report systems by
polling sales from each store's POS terminals. We evaluate information obtained
through daily polling, including a daily tracking of gross margin, to implement
merchandising decisions regarding reorders, markdowns and allocation of
merchandise. Wholesale and catalog operations are also supported by MIS
applications from established vendors, designed specifically to meet the unique
requirements of these segments of the business. These applications include
customer service phone center, order processing and mailing list maintenance.

ALLOCATION AND DISTRIBUTION OF MERCHANDISE

         Allocation and distribution of our inventory is performed centrally at
the SKU, merchandise classification and store levels using integrated
third-party software. Utilizing our MIS capabilities, our planning and
allocation group works closely with the merchandising and retail departments to
monitor and respond to customer purchasing trends and meet the seasonal and
locale-specific merchandising requirements of our retail stores.

         Our main warehouse facility and our mail order warehouse and
fulfillment facility are located in a 143,000 square-foot distribution facility
in Santa Fe Springs, California. All merchandise is delivered by vendors to this
facility, where it is inspected, entered into our merchandising software system,
picked and boxed for shipment to the stores or customers. We ship merchandise to
our stores at least weekly, to provide a steady flow of merchandise.

TRADEMARKS

         The Company utilizes a variety of trademarks which it owns; including
the U.S. registered trademarks BIG DOGS(R), BIG DOG SPORTSWEAR(R), dog logo, BIG
DOG(R), LITTLE BIG DOGS(R), BIG BIG DOGS(R) and THE WALKING COMPANY(R). In
addition, we have registered certain of our trademarks or have registration
applications pending in over 22 other countries. We regard our trademarks and
other proprietary rights as valuable assets and believe they have significant
value in the marketing of our products. Like most popular brands, from time to
time in the course of business we discover products in the marketplace that we
believe infringe upon our trademark rights. In addition, companies may claim
that a certain product or graphic of ours infringes on their intellectual
property rights (sometimes in regard to our parodies of other's trademarks that
we do as part of the Big Dogs sense of fun). We vigorously protect our
trademarks and defend ourselves against claims of others. Actions against
infringers include the use of cease and desist letters, administrative
proceedings and lawsuits.

COMPETITION

         Although the level and nature of competition differ among our product
categories, Big Dogs competes primarily on the basis of its brand image,
offering a unique combination of quality, value and fun, and on other factors
including product assortment, price, store location and layout, and customer
service. The markets for each of our products are highly competitive. We believe
that our long-term competitive position will depend upon our ability to
anticipate and respond effectively to changing consumer demands and to offer
customers a wide variety of high-quality, fun products at competitive prices.
Although we believe we do not compete directly with any single company with
respect to our entire range of merchandise, within each merchandise category we
compete with well-known apparel and specialty retail companies such as The GAP
and Eddie Bauer and The Disney Stores, as well as a large number of national and
regional department stores, specialty retailers and apparel designers and
manufacturers. In addition, in recent years, the amount of casual sportswear and
activewear manufactured specifically for department stores and sold under their
own labels has significantly increased. The Walking Company competes primarily
with small shoes chains and also department stores, such as Nordstrom.

         Some of the Company's competitors are significantly larger and more
diversified and have substantially greater financial, distribution, marketing
and other resources and have achieved greater recognition for their brand names
than the Company.


EMPLOYEES

         At March 1, 2004, we had approximately 600 full-time and 800 part-time
employees (prior to the acquisition of The Walking Company). The number of
part-time employees fluctuates significantly based on seasonal needs. No
employees are covered by collective bargaining agreements.

AVAILABLE INFORMATION

        Our website is www.bigdogs.com. We make available free of charge
through our website our annual, quarterly and current reports, and any
amendments to those reports, as soon as reasonably practical after
electronically filing such reports with the Securities and Exhange Commission.
This website is intended to be an inactive textual reference only and none of
the information contained in our website is part of this report or is
incorporated in this report by reference.

<PAGE>
ITEM 2.           PROPERTIES

         Our corporate headquarters are in leased offices comprising
approximately 24,000 square feet in Santa Barbara, California. This lease
expires July 2011, with two options to extend for another 5 years. Our
distribution facility is located in Santa Fe Springs, California in a building
comprising approximately 143,000 square feet under a lease that expires in
January 2008. We have an option to extend this lease for 5 years.

         We lease all of our store locations. Big Dogs store leases are
typically for an initial term of 5 years with a 5-year option and provide for
base rent plus contingent rent based upon a percentage of sales in excess of
agreed-upon sales levels. In recent years, Big Dogs has negotiated shorter-term
renewals in malls where it perceives a risk of declining sales. See "Item 1.
BUSINESS - RETAIL STORES." The Walking Company stores typically have longer
terms, as required by leading mall developers.

ITEM 3.           LEGAL PROCEEDINGS

         We are involved from time to time in litigation incidental to our
business. We believe that the outcome of such litigation will not have a
material adverse effect on our results of operation or financial condition.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS

         Not applicable.

                                     PART II

ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
                  SHAREHOLDER MATTERS

         The common stock of our Company is traded on the NASDAQ National Market
under the symbol BDOG. The following table sets forth, for the period from the
first quarter 2002 through the fourth quarter 2003, the high and low "sales"
price of the shares of our common stock, as reported on the NASDAQ National
Market.
<TABLE>
                                                              2003                      2002
                                                              ----                      ----
                                                          High     Low              High       Low
                                                          ------------              --------------
                   <S>                                    <C>      <C>              <C>        <C>
                  First Quarter                         $ 2.670  $ 1.840          $ 5.590   $ 1.890
                  Second Quarter                          3.210    1.930            5.146     2.760
                  Third Quarter                           3.340    2.610            3.690     2.100
                  Fourth Quarter                          4.000    2.730            3.730     2.450
</TABLE>

         On March 1, 2004, the last sales price of the common stock as reported
on the NASDAQ National Market was $4.600 per share. As of March 1, 2004, we had
approximately 144 shareholders of record of our common stock.

         Our current credit agreement prohibits the payment of dividends (see
Liquidity and Capital Resources). We did not pay a dividend in 2003 and 2002,
and do not expect to pay dividends in the future.


<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The selected consolidated financial data set forth below should be read
in conjunction with the Consolidated Financial Statements and the Notes thereto
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Form 10-K. Financial data for
The Walking Company is not included in the following table or in the financial
data elsewhere presented in this Form 10-K.
<TABLE>

                                                       YEARS ENDED DECEMBER 31,
                                                       -----------------------
                                                2003      2002      2001      2000      1999
                                                ----      ----      ----      ----      ----
                                                (in thousands, except per share and operating data)
STATEMENT OF OPERATIONS DATA:
<S>                                              <C>       <C>       <C>       <C>       <C>
Net sales......................................$103,757  $108,756  $112,369  $115,280   $109,573
Cost of goods sold.............................  45,025    46,970    49,154    48,836     46,491
                                               --------  --------  --------  --------   --------
Gross profit...................................  58,732    61,786    63,215    66,444     63,082
                                               --------  --------  --------  --------   --------
Selling, marketing and distribution expenses...  49,089    51,528    52,660    53,176     50,125
General and administrative expenses............   5,199     5,252     5,618     5,394      5,020
                                               --------  --------   -------  --------   --------
Total operating expenses.......................  54,288    56,780    58,278    58,570     55,145
                                               --------  --------   -------  --------   --------
Income from operations.........................   4,444     5,006     4,937     7,874      7,937
Write-off of impaired asset(1).................     ---       ---       ---     3,000        ---
Other income(1)................................     ---       ---      (334)      ---        ---
Interest income(2).............................      (2)   (3,175)      (39)     (258)      (439)
Interest expense(2)............................     320     3,761     1,158       596         44
                                               --------  --------   -------  --------   ---------
Income before provision for income taxes.......   4,126     4,420     4,152     4,536      8,332
Provision for income taxes.....................   1,489       603     1,512     2,719      3,136
                                               --------  --------   -------- --------   ---------
Net income.....................................$  2,637  $  3,817   $ 2,640  $  1,817   $  5,196
                                               ========  ========   ======== ========   =========

Net Income per share
 Basic and diluted.............................$   0.32  $   0.45   $   0.31 $   0.17   $   0.43

Weighted average common shares
 Basic.........................................   8,307     8,409      8,457   10,808     12,032
 Diluted.......................................   8,307     8,409      8,477   10,906     12,182

Cash dividend per common share.................$   0.00  $   0.00   $   0.00 $   0.10   $   0.10

OPERATING DATA:

Number of stores (3)
 Stores open at beginning of period.............    209       208        198      191        177
 Stores opened during period....................      7         7         16       16         17
 Stores closed during period....................    (13)       (6)        (6)      (9)        (3)
                                                --------  --------   -------- --------   --------
 Stores open at end of period...................    203       209        208      198        191
Comparable stores sales (decrease) increase (4).   (3.6)%    (6.3)%     (4.4)%    1.3%       1.0%

BALANCE SHEET DATA:
Working capital................................. $29,574  $26,122    $22,261  $17,553    $32,462
Total assets....................................  42,582   39,679     40,307   43,280     56,413
Total indebtedness (5)..........................     ---      ---      1,767    6,000        ---
Stockholders' equity............................  34,214   31,983     28,408   25,859     46,660
</TABLE>

(1) In 2000, we wrote off our entire $3,000,000 investment in PETsMART.com
preferred stock. Subsequently, in 2001, a proposal and acceptance occurred
whereby we sold this preferred stock for $334,000.

(2) In 2002, we earned $3,172,000 of interest income and incurred $3,288,000 of
interest expense relating to the short-sale and repurchase of $95,384,000 of
U.S. Treasury Securities.

(3) Excludes one temporary store which was open for a portion of 2000. Includes
3 temporary stores which were open as of December 31, 2003.

(4) Comparable store sales represent net sales of stores open at least one full
year. Stores are considered comparable beginning on the first day of the third
month following the one-year anniversary of their opening. Stores that are
relocated but remain in the same shopping area remain in the comparable store
base. The Company believes this method best reflects the effect of one-time
promotional events and is most consistent with industry methods.

(5) Includes subordinated debt, obligations under the bank line of credit and
obligations under capital leases.

<PAGE>

ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto of the Company
contained elsewhere in this Form 10-K. Financial data for The Walking Company is
not included in the following table or in the financial data elsewhere presented
in this Form 10-K.

GENERAL

         Big Dogs develops, markets and retails a branded, lifestyle collection
of unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. The number of our stores has grown
from 5 in 1993 to 203 as of December 31, 2003.

         During July 2002, we entered into two transactions relating to the
short-sale and repurchase of approximately $95.3 million of U. S. Treasury
Securities. The transactions were intended to address interest rate exposure and
generate capital gains that could be used to offset previously incurred capital
losses. The first transaction, which represented $95.3 million of U. S. Treasury
Securities, matured on November 15, 2002. In the second transaction, we had
repurchased $95.4 million of U. S. Treasury Securities on November 15, 2002. As
of December 31, 2002, we recorded interest income of $3.2 million and interest
expense of $3.3 million related to these transactions. The net loss related to
these transactions totaled $0.1 million.

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain
selected statement of operations data expressed as a percentage of net sales:
<TABLE>

                                                                  YEARS ENDED DECEMBER 31,

                                                                  2003             2002           2001
                                                                  -----            -----          ----
<S>                                                               <C>              <C>            <C>
Net sales...................................................      100.0%           100.0%         100.0%
Cost of goods sold..........................................       43.4             43.2           43.7
                                                                  -----            -----          -----

Gross profit................................................       56.6             56.8           56.3


Selling, marketing and distribution expenses................       47.3             47.4           46.9
General and administrative expenses.........................        5.0              4.8            5.0
                                                                  -----            -----          -----

Total operating expenses....................................       52.3             52.2           51.9
                                                                  -----            -----          -----

Income from operations......................................        4.3%             4.6%           4.4%
</TABLE>


YEARS ENDED DECEMBER 31, 2003 AND 2002

         NET SALES. Net sales consist of sales from our stores, catalog,
website, and wholesale accounts, all net of returns and allowances. Net sales
decreased to $103.8 million in 2003 from $108.8 million for 2002, a decrease of
$5.0 million, or 4.6%. Of the $5.0 million decrease, $3.5 million was
attributable to a 3.6% comparable store sales decrease for the period, $1.6
million was attributable to those stores not opened for comparable periods,
which includes the closure of unprofitable stores netted against new stores
opened in the period, and $0.5 million was attributable to a decrease in our
wholesale business. This decrease was offset by a $0.6 million increase in the
mail order business. The 2003 decrease in comparable store sales is primarily
related to a decline in product sales as a result of lower customer traffic in
our stores and outlet locations. Retail sales were impacted by the highly
competitive conditions and overall difficult retail environment.

         GROSS PROFIT. Gross profit decreased to $58.7 million in 2003 from
$61.8 million for 2002, a decrease of $3.1 million, or 5.0%. As a percentage of
net sales gross profit is relatively constant, decreasing to 56.6% in 2003 from
56.8% in 2002. Gross profit may not be comparable to those of other retailers,
since some retailers include distribution costs and store occupancy costs in
costs of goods sold, while we exclude them from gross margin, including them
instead in selling, marketing and distribution expenses.

         SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses consist of expenses associated with creating,
distributing, and selling products through all channels of distribution,
including occupancy, payroll and catalog costs. Selling, marketing and
distribution expenses decreased to $49.1 million in 2003 from $51.5 million in
2002, a decrease of $2.4 million, or 4.7%. The decrease in selling, marketing
and distribution expenses is primarily due to cost reductions resulting from a
net 6 store decrease in the Company's store base causing lower depreciation
expense and other retail cost expense reductions. The retail cost reductions
related primarily to payroll and lease occupancy expenses. As a percentage of
net sales, these expenses remained relatively constant, decreasing to 47.3% in
2003 from 47.4% in 2002.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of administrative salaries, corporate occupancy costs and other
corporate expenses. General and administrative expenses remained relatively
constant, decreasing to $5.2 million in 2003 from $5.3 million in 2002. As a
percentage of net sales, these expenses increased to 5.0% in 2003 from 4.8% in
2002. The increase as a percentage of net sales is due to a lower net sales base
in 2003.

         INTEREST INCOME. Interest income decreased to $2,000 in 2003 from $3.2
million in 2002. In July 2002, we entered into two transactions relating to the
short-sale and repurchase of approximately $95.3 million of U.S. Treasury
Securities and we earned approximately $3.2 million in interest income from
holding these securities. The transactions were intended to address interest
rate exposure and generate capital gains that could be used to offset previously
incurred capital losses. The first transaction, which represented $95.3 million
of U. S. Treasury Securities, matured on November 15, 2002 and we earned
approximately $3.2 million of interest income related to these securities. In
the second transaction, we repurchased $95.4 million of U.S. Treasury Securities
on November 15, 2002.

         INTEREST EXPENSE. Interest expense decreased to $0.3 million in 2003
from $3.8 million in 2002. Such decrease was primarily due to $3.3 million of
interest expense related to our short bond transactions (See "Interest Income").
Otherwise, interest expense decreased to $0.3 million in 2003 from $0.5 million
in 2002 related to lower average outstanding borrowings during 2003 as compared
to 2002.

         INCOME TAXES. In 2003, the provision for income taxes reflects a 36.1%
effective tax rate, compared to a 13.6% tax rate in 2002. The increase in the
effective tax rate is primarily related to a valuation allowance established in
2000 and relieved in 2002, specifically identified with the write-off of our
$3.0 million investment in PETsMART.com, which represented a capital loss and
required us to generate capital gains in order to realize the deferred tax
asset. Based on the nature of the loss, we provided a valuation allowance in
2000 to reduce our deferred tax asset to a level which, more likely than not,
would be realized. In 2002, we completed our short bond transactions (See
"Interest Income"), which generated the capital gains necessary to offset these
capital losses thereby relieving this valuation allowance.


YEARS ENDED DECEMBER 31, 2002 AND 2001

         NET SALES. Net sales decreased to $108.8 million in 2002 from $112.4
million for 2001, a decrease of $3.6 million, or 3.2%. Of the $3.6 million
decrease, $6.5 million was attributable to a 6.3% comparable store sales
decrease for the period, offset by $2.7 million from new stores not opened for
comparable periods, and $0.2 million increase in our wholesale business. The
2002 decrease in comparable store sales is primarily related to a decline in
product sales as a result of lower customer traffic in our stores and outlet
locations. Sales were impacted by the highly competitive conditions and overall
difficult retail environment.

         GROSS PROFIT. Gross profit decreased to $61.8 million in 2002 from
$63.2 million for 2001, a decrease of $1.4 million, or 2.2%. As a percentage of
net sales, gross profit increased to 56.8% in 2002 from 56.3% in 2001. The 0.5%
increase was primarily due to a shift of promotional sales to higher margined
sales such as T-shirts. Gross profit may not be comparable to those of other
retailers, since some retailers include distribution costs and store occupancy
costs in costs of goods sold, while we exclude them from gross margin, including
them instead in selling, marketing and distribution expenses.

         SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses decreased to $51.5 million in 2002 from $52.7 million in
2001, a decrease of $1.2 million, or 2.3%. The decrease in these expenses is
primarily a result of a decrease in depreciation of $0.8 million and various
retail, sales and catalog expenses totaling $0.4 million. As a percentage of net
sales, these expenses increased to 47.4% in 2002 from 46.9% in 2001, an increase
of 0.5%. The increase as a percentage of net sales is due to a lower net sales
base in 2002.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased to $5.3 million in 2002 from $5.6 million in 2001, a decrease
of $0.3 million, or 5.4%. The decrease is comprised of lower depreciation and
donation expenses. As a percentage of net sales, these expenses remained
relatively constant, decreasing to 4.8% in 2002 from 5.0% in 2001.

         OTHER INCOME. In 2001, other income resulted from a $0.3 million gain
on the sale of PETsMART.com stock. After careful consideration of the internet
and capital markets, we wrote off our entire $3,000,000 investment in
PETsMART.com stock at December 31, 2000. Subsequently, in June 2001, a proposal
and acceptance occurred whereby we sold this stock for $0.3 million.

         INTEREST INCOME. Interest income increased to $3.2 million in 2002 from
$0.4 million in 2001. In July 2002, we entered into two transactions relating to
the short-sale and repurchase of approximately $95.3 million of U.S. Treasury
Securities and we earned approximately $3.2 million in interest income from
holding these securities. The transactions were intended to address interest
rate exposure and generate capital gains that could be used to offset previously
incurred capital losses. The first transaction, which represented $95.3 million
of U. S. Treasury Securities, matured on November 15, 2002 and we earned
approximately $3.2 million of interest income related to these securities. In
the second transaction, we repurchased $95.4 million of U.S. Treasury Securities
on November 15, 2002.

         INTEREST EXPENSE. Interest expense increased to $3.8 million in 2002
from $1.2 million for the same period in 2001. Interest expense in 2002
consisted of $3.3 million of interest expense related to our short bond
transactions (See "Interest Income") and $0.5 million related to short-term
borrowings. In 2001, interest expense consisted of $1.2 million related to
short-term borrowings. The $0.7 million decrease in interest expense related to
short-term borrowings in 2002 compared to 2001 is due to lower outstanding
borrowings during 2002.

         INCOME TAXES. In 2002, the provision for income taxes reflects a 13.6%
effective tax rate, compared to a 36.4% tax rate in 2001. The decrease in the
effective tax rate is primarily related to a valuation allowance established in
2000 and relieved in 2002, specifically identified with the write-off of our
$3.0 million investment in PETsMART.com, which represented a capital loss and
required us to generate capital gains in order to realize the deferred tax
asset. Based on the nature of the loss, we provided a valuation allowance in
2000 to reduce our deferred tax asset to a level which, more likely than not,
would be realized. In 2002, we completed our short bond transactions (See
"Interest Income"), which generated the capital gains necessary to offset these
capital losses thereby relieving this valuation allowance.

SEASONALITY AND QUARTERLY RESULTS

         We believe our seasonality is somewhat different than many apparel
retailers since a significant number of our 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 our annual net sales and profits. In 2003, excluding
sales generated by stores not open for all of 2003, substantially all our
operating income and approximately 28% and 32% of our net retail sales were
generated during the third and fourth quarters, respectively.

         Our quarterly results of operations may also fluctuate as a result of a
variety of factors, including the timing of store openings, the amount of
revenue contributed by new stores, changes in comparable store sales, changes in
the mix of products sold, customer acceptance of new products, the timing and
level of markdowns, competitive factors and general economic conditions.

LIQUIDITY AND CAPITAL RESOURCES

         During 2003, our primary uses of cash were related to general operating
activity, the build-out of new stores and the repurchase of common stock. We
satisfied our cash requirements from cash generated from operations and existing
cash balances.

         Cash provided by operating activities was $5.8 million and $6.7 million
in 2003 and 2002, respectively. The $.9 million reduction in cash provided by
operating activities relates to a reduction in our net income of $1.2 million,
$2.6 million in 2003 compared to $3.8 million in 2002, which was offset by an
increase in prepaid expenses and accounts payable relating to prepaid inventory
shipments and timing of payments for inventory and operating-type expenses.
Additionally, cash disbursements were less for income taxes in 2003 as compared
to 2002, due to timing of payments.

         Cash used in investing activities was $1.0 million and $1.4 million
during 2003 and 2002, respectively. Cash used in investing activities in 2003
and 2002 primarily related to 7 new store openings and capital additions to our
existing stores. The lower capital expenditures of $1.0 million in 2003
compared to the $1.3 million of capital expenditures in 2002 results from the
lower costs associated with opening only 4 new permanent stores and 3 temporary
stores, whereas in 2002 we opened 7 new permanent stores.

         Cash used in financing activities during 2003 and 2002 was $0.5 million
and $2.2 million, respectively. In 2003, we repurchased $0.4 million of common
stock. In 2002, we paid down $1.8 million of short-term borrowings under the
credit agreement and repurchased $0.2 million of common stock. Additionally, in
2002 the Company paid $150,000 in deferred financing fees related to the
Company's credit facility entered into in October 2001 as compared to $45,000
in 2003.

         In October 2001, we entered into a $30.0 million three-year line of
credit facility with Wells Fargo Retail Finance. This facility was amended in
March 2004 in conjunction with our acquisition of The Walking Company's assets
(see further discussion in the following paragraphs) which reduced the line to
$28.0 million. The line is secured by substantially all of our assets and
requires daily, weekly and monthly financial reporting as well as compliance
with financial, affirmative and negative covenants and prohibits the payment of
dividends. Prior to the amendment, the most significant of these financial
covenants was compliance with certain pre-defined earnings before interest,
income taxes, depreciation and amortization targets. As amended, the most
significant covenant is compliance with certain pre-defined capital
expenditures. For all periods presented, we were in compliance with this and all
other covenants. This credit agreement provides for a performance-pricing
structured interest charge, ranging up to LIBOR plus 1.75%, which is based on
excess availability levels. As of December 31, 2003, we did not have an
outstanding balance under this credit agreement. We had $1.0 million of letters
of credit outstanding as of December 31, 2003, which expire through December
2004.

         On March 3, 2004, the Company, through a newly formed subsidiary,
acquired through bankruptcy substantially all the assets and assumed certain
liabilities of The Walking Company. The Walking Company (TWC) is a leading
specialty retailer (operating 72 stores) of high quality comfort walkwear shoes
and accessories. The total purchase price for the acquisition was approximately
$19 million, subject to adjustment. The purchase price included the payment of
cash and issuance of notes to certain creditors of approximately $9.0 million
and $4.0 million, respectively, the assumption of certain short and long term
obligations of approximately $2.8 million and incurrence of acquisition related
fees totaling approximately $2.6 million. Additionally, certain creditors were
issued 10% of TWC's outstanding common stock (valued at $645,000), with a right
(in the form of warrants) to convert the TWC shares into shares of common stock
of the Company at a price of $4.35 per share and a right to put such TWC shares
to TWC for cash totaling $645,000. The notes issued to certain creditors also
include provisions that allow the creditors to put a portion of their debt to
TWC and/or the Company at a predetermined discount or convert a portion of their
debt to the Company common stock at a price of $4.35 per share. These provision
and warrants expire on June 30, 2004. The total number of shares of Company
common stock issuable under all of such warrants and put provisions is
1,067,817. Additionally, included in the purchase were guarantees made by:
(1) the Company for certain real estate leases, and (2) the Chairman of the
Board and Chief Executive Officer of the Company with regard to a potential
$2.9 million disputed administrative claim and the obligation of the Company to
make payment of the potential exercise of put rights, which were provided in
response to demands of creditors. The consideration to the Chairman and Chief
Executive Officer for providing such guarantees includes that the Company and
TWC granted them the right to purchase the foregoing notes issued to creditors,
and related rights, in the event such notes are put to the Company or TWC at the
purchase price the Company or TWC would be obligated to pay for them under the
put. The Company is currently evaluating the additional contribution cost
allocable to the purchase related to the fair value of the guarantees.

         In conjunction with the acquisition, the Company contributed $8.95
million to TWC ($6.45 million as equity and $2.5 million in subordinated debt.)
The contribution was funded through earnings of the Company and borrowings under
its current line of credit agreement totaling $7.5 million and $1.45 million was
drawn on a new two year $3.0 million unsecured revolving promissory note
facility with Israel Discount Bank. The revolving facility bears interest at
prime plus 1% and is guaranteed by the Chairman of the Company for which he
received a 2.5% guarantee fee of $75,000. At March 3, 2004, the Company had
$1.45 million outstanding under this facility.

         In addition to the line of credit agreement amended in March 2004, of
which $2.8 million was outstanding on March 3, 2004, TWC entered into a new
$17.5 million revolving credit facility with Wells Fargo Retail Finance on
March 2, 2004. The line is secured by substantially all of TWC assets and
requires daily, weekly and monthly financial reporting as well as compliance
with financial, affirmative and negative covenants and prohibits the payment of
dividends, among other things. The most significant of these financial covenants
is compliance with certain pre-defined earnings before interest and
depreciation, accounts payable to inventory ratio covenant and capital
expenditures. This credit agreement provides for a performance-pricing
structured interest charge, ranging up to LIBOR plus 2.75%, which is based on
excess availability levels. As of the March 3, 2004, TWC had approximately $3.0
outstanding under this credit agreement and $0.5 million of outstanding letters
of credit.

         In 2003, our average cost to build a new store, including furniture and
fixtures, and leasehold improvements, net of tenant improvement allowances, was
approximately $48,000. The average total cost to build new stores will vary in
the future, depending on various factors, including square footage, changes in
store design, local construction costs and tenant improvement allowances. Our
average initial inventory for new stores opened in 2003 was approximately
$73,000. Our initial inventory for new stores will vary in the future depending
on various factors, including store concept and square footage.

         Management believes that available cash, the credit facilities in place
in 2003 and 2004, and cash generated from operations will be adequate to fund
the Company's working capital requirements for the foreseeable future.

<PAGE>

COMMITMENTS AND OBLIGATIONS

         As of December 31, 2003, we had the following obligations:
<TABLE>

                                                                 Amounts of Commitment Expiration per Period

                                                  Total
                                                  -----
                                                  Amounts         Less than 1
                                                  -------         -----------
                                                  Committed       year           1 to 3 years    4 to 5 years  Over 5 years
                                                  ---------       ----           ------------    ------------  ------------

<S>                                               <C>             <C>            <C>              <C>           <C>
Contractual Obligations:
  Operating leases............................    $40,763,000     $14,383,000    $17,549,000     $6,239,000    $2,592,000


Other Commercial Commitments:
  Letters of credit...........................        651,000         651,000            ---            ---             ---
  Standby letters of credit...................        315,000         315,000            ---            ---             ---
                                                  -----------     -----------     ----------     ----------    ------------

Total Commitments..............................   $41,729,000     $15,349,000    $17,549,000      $6,239,000    $2,592,000
                                                  ===========     ===========    ===========      ==========    ==========
</TABLE>

Operating Leases - We lease retail and office space under various operating
leases. Certain leases are cancelable with substantial penalties. See "Part 1.
Item 2. - Properties" for additional information regarding our leases.

Letters of Credit - We open letters of credit to facilitate inventory purchases
as required by certain vendors. The letters of credit list certain documentation
requirements that each vendor must present to our bank before payment is made.
We are obligated to make these payments upon presentation of these documents.

         See additional discussion above under Liquidity and Capital Resources.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 eliminates
the amortization of intangible assets with indefinite useful lives and
requires intangible assets to be reviewed for impairment at least annually and
expensed to earnings only in the periods in which the recorded value of the
intangible asset is more than the fair value. SFAS No. 142 was effective for
fiscal years beginning after December 15, 2001. This Statement was adopted
in fiscal 2002. Accordingly, amortization of intangible assets ceased on
December 31, 2001.

         In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which provides standards on the accounting for
obligations associated with the retirement of long-lived assets. SFAS No. 143
is effective for fiscal years beginning after June 15, 2002. The adoption of
this statement did not have a significant impact on our consolidated financial
statements.

         In July 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supersedes SFAS No. 121 on the same topic and the accounting and
certain reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business (as defined in that Opinion). This
Statement also amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. SFAS No. 144 is
effective for fiscal periods beginning after December 15, 2001. We implemented
the pronouncement beginning in the first quarter of fiscal year 2002. The
adoption of this statement did not have an impact on our consolidated financial
statements.

         In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses exit or disposal
activities including one-time involuntary employee termination benefits,
contract termination costs and costs to consolidate facilities or relocate
employees. Existing accounting guidelines (principally Emerging Issue Task Force
Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity) require companies to recognize a liability when
management commits itself or announces plans to exit or dispose of an activity.
SFAS No. 146 will prohibit companies from recognizing an exit or disposal
liability until the liability has been incurred, generally the "communication
date" for one-time termination benefits and the contract termination or "cease
use date" for contract costs, and will require these liabilities to be measured
at fair value. This statement is effective for exit or disposal activities
initiated after December 31, 2002. The adoption of the provisions of this
statement did not have an impact on our consolidated financial
statements.

         In December 2002, the FASB issued SFAS No. 148. SFAS No. 123, as
amended by SFAS No. 148, requires companies to estimate employee stock
compensation expense based on the fair value method of accounting. However, the
statement allows the alternative of continued use of the intrinsic value method
described in APB Opinion No. 25, if pro forma disclosure of fair value amounts
is provided. We have elected the alternative of continued use of APB Opinion No.
25.

         In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The adoption of this statement did not have an impact on our consolidated
financial statements.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. SFAS
No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of this statement
did not have an impact on the consolidated financial statements since
we currently have no instruments that meet this definition.

         In November 2002, the FASB issued FASB Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which elaborates on required
disclosures by a guarantor in its financial statements about obligations under
certain guarantees that it has issued and clarifies the need for a guarantor to
recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The Company adopted
the provisions of this Interpretation relating to initial recognition and
measurement of guarantor liabilities, which was effective for qualifying
guarantees entered into or modified after January 1, 2003. The adoption of this
interpretation did not have an impact on our consolidated financial statements.

         In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities - an Interpretation of ARB No. 51, Consolidated Financial
Statements." This interpretation addresses consolidation by business
enterprises of entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. Variable interest entities
are required to be consolidated by their primary beneficiaries if they do not
effectively disperse risks among the parties involved. The primary beneficiary
of a variable interest entity is the party that absorbs a majority of the
entity's expected losses or receives a majority of its expected residual
returns. In December 2003, the FASB amended FIN 46, now known as FIN 46
Revised ("FIN 46R"). The requirements of FIN 46R are effective no later than
the end of the first reporting period that ends after March 15, 2004. A
company that has applied FIN 46 to an entity prior to the effective date of FIN
46R shall either continue to apply FIN 46 until the effective date of FIN 46R
or apply FIN 46R at an earlier date. We do not believe the adoption of this
interpretation will have an impact on our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

         We prepare our consolidated financial statements in accordance with
accounting principles generally accepted in the United States. Our significant
accounting policies are discussed in Note 1 to the consolidated financial
statements. Certain of these accounting policies as discussed below require
management to make estimates and assumptions about future events that could
materially affect the reported amounts of assets, liabilities, revenues and
expenses and disclosure of contingent assets and liabilities. Our most critical
estimate relates to projecting future cash flows used in assessing future store
operating performance and testing long-lived assets for impairment.

         We evaluate the carrying value of long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying value of
such assets may not be recoverable. This evaluation is performed based on the
estimated undiscounted future cash flows from operating activities compared with
the carrying value of the related asset. If the undiscounted future cash flows
are less than the carrying value, an impairment loss is recognized, measured by
the difference between the carrying value and the estimated fair value of the
assets, with such estimated fair values determined using the best information
available generally based on prices for similar assets for stores recently
opened. Our evaluation for years ended 2003 and 2002, which included all retail
locations, indicated that operating losses existed for certain retail locations
with a projection that the operating losses for these retail locations will
continue. As such, we recorded write-downs of leasehold improvements for certain
retail stores which approximated $50,000 and $102,000 for years 2003 and 2002,
respectively. Such costs are included in selling, marketing and distribution
expenses in the consolidated statements of income.

         We make limited use of derivative instruments. On the date we enter
into a derivative contract, management designates the derivative as a hedge for
the identified exposure. We formally document all relationships between hedging
instruments and hedged items, as well as the risk-management objective and
strategy for entering into various hedge transactions. In this documentation, we
identify the asset, liability, firm commitment, or forecasted transaction that
has been designated as a hedged item and indicate how the hedging instrument is
expected to hedge the risks related to the hedged item. We formally measure
effectiveness of hedging relationships both at the hedge inception and on an
ongoing basis in accordance with its risk management policy. We would
discontinue hedge accounting prospectively if it is determined that the
derivative is no longer effective in offsetting changes in the hedged item.

RISK FACTORS

         Investors in the Company should consider the following risk factors as
well as the other information contained herein.

         CONTROL BY MAJORITY SHAREHOLDER, SMALL PUBLIC FLOAT, AND LOW TRADING
VOLUME OF SHARES. Our Chairman of the Board, Fred Kayne, owns over 50% of Big
Dogs outstanding common stock. As a result, Mr. Kayne is able to control the
election of directors, and to determine the outcome of any other matter
submitted to a vote of our stockholders, including a change in control. In
addition, over 75% of our shares are held by Mr. Kayne and other directors,
officers or beneficial owners of more than 10%, none of whom have historically
traded in the shares on any regular basis. While our shares are currently listed
on the NASDAQ National Market System, the average daily trading volume,
particularly in recent years, has been very low. Due to all the foregoing, and
other factors, there has been and can expect to be significant illiquidity in
our shares.

         ABILITY TO SUCCESSFULLY INTEGRATE ACQUISITION. The Company acquired a
significant business, and may consider other acquisitions if the opportunity
presents itself. The Company's success in effectively integrating these
operations, including their financial, operational and distribution practices
and systems, will affect the contribution of this business to the Company's
consolidated results.

         CONTINUED STORE CLOSURES. The Company continues to evaluate its current
store portfolio for potential store closures. In 2003, the Company closed 13
underperforming Big Dogs stores and in 2004 to date has closed 13 Big Dogs
stores (which included 3 temporary holiday stores). We will continue to take a
careful position in regard to long term real estate commitments and may close
additional stores if considered appropriate.

         CHANGES IN CONSUMER PREFERENCES. The consumer products industry in
general, and the apparel and shoe industry in particular, are subject to
changing consumer demands and preferences. Although we believe our products
historically have not been significantly affected by fashion trends, our
products are subject to changing consumer preferences. Our success will depend
significantly on our ability to continue to produce popular graphics and
products that anticipate, gauge and respond in a timely manner to changing
consumer demands and preferences. In addition, over the years general consumer
preferences rise and decline in regard to the type of graphic and logo-oriented
merchandise provided by Big Dogs, which can have an effect on our business.

         FACTORS AFFECTING STORE TRAFFIC. The large majority of Big Dogs stores
are located in tourist areas, tourist-serving areas and outlet malls, and its
sales depend on a high level of traffic in these locations. We, therefore,
depend on the ability of these tourist destinations and malls to continue to
generate a high volume of consumer traffic in the vicinity of our Big Dogs
stores. Outlet mall traffic appears to have declined in recent years. Tourism
and therefore, outlet mall traffic, may be adversely affected by domestic and
international economic downturns, such as a recession, adverse weather, war or
international conflict, acts of terrorism or terrorism alerts, natural
disasters, changing consumer preferences, highway or surface street traffic, the
closing of high-profile stores near our stores and declines in the desirability
of the tourism or shopping environment in a particular tourist destination or
mall.

         DEPENDENCE ON KEY PERSONNEL. Our success is significantly dependent on
the performance of our key management, particularly Chief Executive Officer,
Andrew Feshbach, and Executive Vice President--Merchandising, Doug Nilsen.

         DEPENDENCE ON THIRD-PARTY AND FOREIGN MANUFACTURERS. We do not own or
operate any manufacturing facilities and are therefore dependent on third
parties for the manufacture of our Big Dogs products. The loss of major
suppliers, or the failure of such suppliers to timely deliver our products or to
meet our quality standards, could adversely affect our ability to deliver
products to our customers in a timely manner.

         The majority of our products are purchased from a variety of trading
companies with relationships with manufacturing facilities located outside the
United States. Our operations could be adversely affected by events that result
in disruption of trade from foreign countries in which our suppliers are
located.

         Our staff or agents periodically visit and observe the operations of
its foreign and domestic manufacturers, but we do not control such manufacturers
or their labor practices. Therefore we cannot necessarily prevent legal or
ethical violations by independent manufacturers, and it is uncertain what impact
such violations would have on us.

         SUBSTANTIAL COMPETITION. The markets for each of our products are
highly competitive. In regard to our apparel products, the increased consumer
shift toward large mass-market and discount retailers has put substantial
pricing and competitive pressure on apparel retailers in general. We believe our
long-term competitive position will depend upon our ability to anticipate and
respond effectively to changing consumer demands and to offer customers a wide
variety of high-quality, fun products at competitive prices.

         RELIANCE ON INFORMATION SYSTEMS. We rely on various information systems
to manage our operations and regularly make investments to upgrade, enhance or
replace such systems. Substantial disruptions affecting our information systems
could have an adverse effect on our business.

         DEPENDENCE ON TRADEMARKS. We use a number of trademarks, the primary
ones of which are registered with the United States Patent and Trademark Office
and in a number of foreign countries. While we believe our trademark rights are
strong, in our pursuit and defense of particular infringement claims it cannot
be assured that we will always prevail. See "Business - Trademarks" and "Legal
Proceedings."

FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. The statements contained in this Form 10-K
that are not purely historical are forward-looking statements, including without
limitation statements regarding our expectations, beliefs, intentions or
strategies regarding the future. Such forward-looking statements include the
discussions in this Management's Discussion and Analysis of Financial Condition
and Results of Operations regarding the seasonality of business, expected new
store openings, integration of acquisition and costs and inflation risks. All
forward-looking statements in this document are based upon information available
to us on the date hereof, and we assume no obligation to update any such
forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We do not believe we have material exposure to losses from market-rate
sensitive instruments. We have not invested in derivative financial instruments.
We have credit agreements with Wells Fargo Retail Finance whereby we may borrow
at a floating rate. These credit agreements provides for a performance-pricing
structured interest charge, ranging up to LIBOR plus 1.75%, based on access
availability levels. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
We did not have any outstanding borrowings under this arrangement as of December
31, 2003.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See "Index to Consolidated Financial Statements" at Item 15(a) for a
listing of the consolidated financial statements filed as part of this report.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

         None.

ITEM 9a. CONTROLS AND PROCEDURES

         EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The term "disclosure
controls and procedures" is defined in Rules 13a-14(c) and 15d-14(c) of the
Securities and Exchange Act of 1934 ("Exchange Act"). These rules refer to the
controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and reported within
required time periods. Our chief executive officer and our chief financial
officer have evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days before the filing of this Annual
Report on Form 10-K (the "Evaluation Date"), and believe that, as of the
Evaluation Date, such controls and procedures were effective at ensuring that
required information will be disclosed on a timely basis in our reports filed
under the Exchange Act.

         There were no significant changes in the Company's internal controls or
in other factors that could significantly affect internal controls, known to the
Chief Executive Officer or the Chief Financial Officer, subsequent to the date
of the evaluation.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Other information with respect to this item is incorporated by
reference from the registrant's definitive proxy statement to be filed with the
Commission not later than 120 days after the end of the registrant's fiscal
year.

EXECUTIVE OFFICERS OF THE REGISTRANT

         Set forth below are the names, ages, titles and present and recent past
positions of persons serving as our executive officers as of March 1, 2004:
<TABLE>

NAME                                AGE                                POSITION
----                                ---                                --------
<S>                                <C>                                 <C>
Andrew D. Feshbach                  43               President, Chief Executive Officer and Director
Douglas N. Nilsen                   55               Executive Vice President - Merchandising (Big Dog USA)
Anthony J. Wall                     48               Executive Vice President - Business Affairs,
                                                     General Counsel and Secretary
Roberta J. Morris                   44               Chief Financial Officer, Treasurer and
                                                     Assistant Secretary
Lee M. Cox                          35               Senior Vice President - Retail
</TABLE>

         ANDREW D. FESHBACH co-founded the Company in May 1992 and has served
as President, Chief Executive Officer and as a director since that time. From
1990 until the present, he has served as a Vice President of Fortune Financial,
a private merchant banking firm owned by the Company's Chairman and majority
stockholder, Fred Kayne.  Mr. Feshbach has an M.B.A. from Harvard University.

         DOUGLAS N. NILSEN has served as Executive Vice President--
Merchandising for more than five years. From 1990 to September 1995, he served
as Director of Merchandise at Walt Disney Attractions, Inc. for its U.S. theme
parks and resorts, and in such capacity was responsible for merchandising all
apparel and accessories. Mr. Nilsen has an M.B.A. from New York University.

         ANTHONY J. WALL has served as Executive Vice President, General Counsel
and Secretary of the Company for more than five years. Mr. Wall also serves as
General Counsel of Fortune Fashions Industries LLC, a custom manufacturer of
embellished apparel, Fortune Casuals, LLC, a manufacturer of casual apparel for
the mass market, and Fortune Swimwear, a manufacturer of swimwear for the mass
market, and a Vice President of Fortune Financial, all of which are controlled
by Fred Kayne.

         ROBERTA J. MORRIS has served as Chief Financial Officer since March
1998, having previously served as Senior Vice President--Finance since January
1995. Ms. Morris is a certified public accountant.

         LEE M. COX joined the Company in September 2000 and has served as
Senior Vice President - Retail since February 2001. From 1994 until September
2000, Mr. Cox was employed by Adidas Retail, Inc. in various capacities, most
recently as Director of Retail Stores.

        The members of the Audit Committee of the Board of Directors are Steven
Good (Chairman), David Walsh and Skip Coomber. Our Board, in its judgement, has
determined that Mr. Good meets the Securities and Exchange Commission's
definition of audit committee financial expert and has designated him as such.
Our Board has further determined that Messrs. Good, Walsh and Coomber are
independent as such term is used under Schedule 14A of the Securities and
Exchange Act of 1934.

        We have adopted a code of ethics for our principal executive officer
and senior financial officers. Copies of the code of ethics are available by
writing to Big Dog Holdings, Inc., Attention General Counsel, 121 Gray Ave.,
Santa Barbara, CA 93101. Should any changes to or waivers of this code of
ethics be made, such changes to or waivers will be timely disclosed on the
Company's website, unless the same is disclosed in a current report on Form 8-K
filed with the Securities and Exchange Commission.

ITEM 11. EXECUTIVE COMPENSATION

         Information with respect to this item is incorporated by reference from
the registrant's definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information with respect to this item is incorporated by reference from
the registrant's definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information with respect to this item is incorporated by reference from
the registrant's definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

          The information required by Item 14 of Part III is incorporated by
reference from the Proxy Statement of Big Dog Holdings, Inc., relating to the
2004 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of
the fiscal 2003 year end.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      1.       The financial statements listed in the "Index to Consolidated
                  Financial Statements" at page F-1 are filed as a part of this
                  report.

         2.       Schedule II - Valuation and Qualifying Accounts

                  Schedules other than that referred to above have been omitted
                  because they are not applicable or are not required under the
                  instructions contained in Regulation S-X or because the
                  information is included elsewhere in the Consolidated
                  Financial Statements or the Notes thereto.

         3.       Exhibits included or incorporated herein: See "Index to
                  Exhibits."

(b) Reports on Form 8-K.

                  There were no reports on Form 8-K filed during the last
                  quarter of the fiscal year covered by this report.


<PAGE>


SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
March 30, 2004 on its behalf by the undersigned, thereunto duly authorized.

                                        BIG DOG HOLDINGS, INC.

                                        By /s/ANDREW D. FESHBACH
                                        ----------------------------
                                        Andrew D. Feshbach
                                        Chief Executive Officer and President

         Each person whose signature appears below hereby authorizes Andrew D.
Feshbach and Anthony J. Wall or either of them, as attorneys-in-fact to sign on
his behalf, individually, and in each capacity stated below and to file all
amendments and/or supplements to the Annual Report on Form 10-K.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>

          SIGNATURE                                        TITLE                                  DATE
          ---------                                        -----                                  ----
         <S>                                   <C>                                              <C>

/s/ANDREW D. FESHBACH                Chief Executive Officer, President and Director          March 30, 2004
---------------------
Andrew D. Feshbach                   (Principal Executive Officer)

/s/ROBERTA J. MORRIS                 Chief Financial Officer, Treasurer and Assistant         March 30, 2004
---------------------------
Roberta J. Morris                    Secretary (Principal Financial and Accounting Officer)

/s/FRED KAYNE                        Chairman of the Board                                    March 30, 2004
------------------
Fred Kayne

/s/SKIP R. COOMBER, III              Director                                                 March 30, 2004
------------------------
Skip R. Coomber, III

/s/STEVEN C. GOOD                    Director                                                 March 30, 2004
------------------
Steven C. Good

/s/ROBERT H. SCHNELL                 Director                                                 March 30, 2004
--------------------
Robert H. Schnell

/s/DAVID J. WALSH                    Director                                                 March 30, 2004
------------------
David J. Walsh

</TABLE>




<PAGE>





                     BIG DOG HOLDINGS, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2003, 2002, and 2001

<TABLE>
                                                                                                  PAGE
                                                                                                  ----
<S>                                                                                                <C>
Independent Auditors' Report.................................................................      F-2

Consolidated Balance Sheets as of December 31, 2003 and 2002.................................      F-3

Consolidated Statements of Income for the years ended December 31, 2003, 2002, and
2001.........................................................................................      F-4

Consolidated Statements of Stockholders' Equity for the years ended December 31,
2003, 2002, and 2001.........................................................................      F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, and
2001.........................................................................................      F-6

Notes to the Consolidated Financial Statements...............................................      F-7
</TABLE>


<PAGE>



                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Big Dog Holdings, Inc.:

         We have audited the accompanying consolidated balance sheets of Big Dog
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2003 and
2002, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2003. Our audits also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December
31, 2003 and 2002, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Los Angeles, California
March 23, 2004

























<PAGE>


                     BIG DOG HOLDINGS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
<TABLE>

                                                                              DECEMBER 31,
                                                                   ---------------------------------
                                                                        2003                2002
                                                                        ----                ----
                    ASSETS(Note 6)
<S>                                                                    <C>                  <C>
CURRENT ASSETS:
 Cash and cash equivalents.......................................  $10,503,000          $ 6,194,000
 Receivables:
  Trade, net.....................................................       25,000              346,000
  Other..........................................................       91,000              113,000
 Inventories (Note 11)...........................................   24,752,000           24,808,000
 Prepaid expenses and other current assets.......................      789,000              457,000
 Deferred income taxes (Notes 5 and 7)...........................      875,000              853,000
                                                                    ----------           ----------
Total current assets.............................................   37,035,000           32,771,000
PROPERTY AND EQUIPMENT, Net (Note 2).............................    4,144,000            5,234,000
INTANGIBLE ASSETS, Net...........................................      211,000              149,000
DEFERRED INCOME TAXES (Notes 5 and 7)............................      946,000            1,107,000
OTHER ASSETS.....................................................      246,000              418,000
                                                                    ----------           ----------
TOTAL............................................................  $42,582,000         $ 39,679,000
                                                                    ==========           ==========

        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Accounts payable..................................................$ 1,932,000         $  1,935,000
 Income taxes payable (Note 7).....................................  1,513,000              555,000
 Accrued expenses and other current liabilites(Note 3).............  4,016,000            4,159,000
                                                                     ---------            ---------
Total current liabilites...........................................  7,461,000            6,649,000
DEFERRED RENT (Note 8).............................................    606,000              693,000
DEFERRED GAIN ON SALE-LEASEBACK (Note 2)...........................    301,000              354,000
                                                                     ---------            ---------
 Total liabilities.................................................  8,368,000            7,696,000
COMMITMENTS AND CONTINGENCIES (Note 6 and 8)                         ---------            ---------
STOCKHOLDERS' EQUITY (Note 9):
 Preferred stock, $.01 par value, 3,000,000 shares authorized,
  none issued and outstanding......................................$       ---         $        ---
Common stock $.01 par value, 30,000,000 shares authorized,
 9,698,284 shares issued at December 31, 2003 and 2002.............     97,000               97,000
Additional paid-in capital......................................... 20,510,000           20,510,000
Retained earnings.................................................. 21,461,000           18,824,000
Treasury stock, 1,455,152 and 1,305,636 shares at December 31, 2003
 and 2002, respectively............................................ (7,854,000)          (7,448,000)
                                                                    ----------           ----------
Total stockholders' equity......................................... 34,214,000           31,983,000
                                                                    ----------           ----------
TOTAL..............................................................$42,582,000         $ 39,679,000
                                                                    ==========           ==========

</TABLE>

                       See notes to consolidated financial statements.

<PAGE>





                     BIG DOG HOLDINGS, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>


                                                                             YEARS ENDED DECEMBER 31,

                                                                         2003              2002             2001
                                                                         ----              ----             ----
<S>                                                                     <C>                <C>              <C>
NET SALES....................................................        $ 103,757,000    $ 108,756,000     $ 112,369,000
COST OF GOODS SOLD (Note 11).................................           45,025,000       46,970,000        49,154,000
                                                                     -------------    -------------     -------------
GROSS PROFIT.................................................           58,732,000       61,786,000        63,215,000
                                                                     -------------    -------------     -------------

OPERATING EXPENSES:
 Selling, marketing and distribution.........................           49,089,000       51,528,000        52,660,000
 General and administrative..................................            5,199,000        5,252,000         5,618,000
                                                                     -------------    -------------     -------------
  Total operating expenses...................................           54,288,000       56,780,000        58,278,000
                                                                      ------------     ------------      ------------

INCOME FROM OPERATIONS.......................................            4,444,000        5,006,000         4,937,000

OTHER INCOME (Note 4)........................................                  ---              ---          (334,000)

INTEREST INCOME (Note 5).....................................               (2,000)      (3,175,000)          (39,000)

INTEREST EXPENSE (Notes 5 and 6).............................              320,000        3,761,000         1,158,000
                                                                    --------------    -------------     -------------

INCOME BEFORE PROVISION FOR INCOME TAXES.....................            4,126,000        4,420,000         4,152,000

PROVISION FOR INCOME TAXES (Notes 5 and 7)...................            1,489,000          603,000         1,512,000
                                                                     -------------   --------------     -------------

NET INCOME...................................................         $  2,637,000     $  3,817,000      $  2,640,000
                                                                      ============     ============      ============

NET INCOME PER SHARE
 BASIC AND DILUTED...........................................         $       0.32     $       0.45      $       0.31
                                                                      ============     ============      ============
</TABLE>


                       See notes to consolidated financial statements.

<PAGE>



                     BIG DOG HOLDINGS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
                        COMMON STOCK           ADDITIONAL                        TREASURY STOCK
                        ------------           PAID-IN       RETAINED            --------------
                     SHARES      AMOUNT        CAPITAL       EARNINGS         SHARES         AMOUNT         TOTAL
                     ------      ------        -------       --------         ------         ------         -----
 <S>                 <C>         <C>           <C>           <C>              <C>           <C>             <C>
BALANCE,
JANUARY 1, 2001......9,686,284 $ 97,000     $20,475,000     $12,367,000      1,202,200   $(7,080,000)     $25,859,000

Repurchases common
 stock (Note 9)......      ---      ---             ---             ---         31,020      (126,000)        (126,000)
Warrants exercised...   12,000      ---          35,000             ---            ---           ---           35,000
Net income...........      ---      ---             ---       2,640,000            ---           ---        2,640,000
                     ---------   ------      ----------      ----------      ---------    ----------       -----------

BALANCE,
DECEMBER 31,2001.....9,698,000   97,000      20,510,000      15,007,000      1,233,220    (7,206,000)      28,408,000

Repurchased common
 stock (Note 9)......      ---      ---             ---             ---         72,416      (242,000)        (242,000)
Net income...........      ---      ---             ---       3,817,000            ---           ---        3,817,000
                     ---------   ------      ----------      ----------      ---------     ----------      ----------

BALANCE,
DECEMBER 31,2002.....9,698,284   97,000      20,510,000      18,824,000      1,305,636    (7,448,000)      31,983,000

Repurchased common
 stock (Note 9)......      ---      ---             ---             ---        149,516      (406,000)        (406,000)
Net income...........      ---      ---             ---       2,637,000            ---           ---        2,637,000
                      --------   ------      ----------       ----------     ---------     ----------      ----------

BALANCE,
DECEMBER 31,2003.....9,698,284 $ 97,000     $20,510,000     $21,461,000      1,455,152   $(7,854,000)     $34,214,000
                     ========= ========     ===========     ===========      =========    ===========     ===========
</TABLE>




                  See notes to consolidated financial statements.

<PAGE>




                     BIG DOG HOLDINGS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>

                                                                                      YEARS ENDED DECEMBER 31,

                                                                                 2003           2002            2001
                                                                                 ----           ----            ----
<S>                                                                              <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income................................................................  $ 2,637,000     $ 3,817,000    $ 2,640,000
 Adjustments to reconcile net income to net cash provided by operating
 activities:
  Depreciation and amortization............................................    2,075,000       2,619,000      3,460,000
  Amortization of deferred financing fees..................................      151,000         153,000        136,000
  Provision for losses on receivables......................................      (25,000)         68,000        473,000
  Loss (gain) on disposition of property and equipment.....................        2,000          21,000        (74,000)
  Loss on sale of U.S. Treasury Bonds......................................          ---         115,000            ---
  Write-off of impaired asset - fixed assets...............................       50,000         102,000        287,000
  Gain on sale of PETsMART.com investment..................................          ---             ---       (334,000)
  Deferred income taxes....................................................      139,000          (6,000)      (525,000)
  Changes in operating assets and liabilities:
   Receivables.............................................................      368,000         285,000       (746,000)
   Inventories.............................................................       56,000       1,969,000        (18,000)
   Prepaid expenses and other current assets...............................     (332,000)         16,000         76,000
   Accounts payable........................................................       (3,000)       (988,000)    (1,630,000)
   Income taxes payable....................................................      958,000      (1,428,000)       157,000
   Accrued expenses and other current liabilities..........................     (143,000)         22,000        417,000
   Deferred rent...........................................................      (87,000)         10,000       (180,000)
   Deferred gain on sale-leaseback.........................................      (53,000)        (52,000)       (53,000)
                                                                            ------------    ------------   ------------
     Net cash provided by operating activities..............................   5,793,000       6,723,000      4,086,000
                                                                            ------------    ------------   ------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures......................................................   (1,044,000)     (1,299,000)    (1,374,000)
 Proceeds from sale of U.S. Treasury Bonds.................................          ---      95,269,000            ---
 Repurchase of U.S. Treasury Bonds.........................................          ---     (95,384,000)           ---
 Proceeds from sale of PETsMART.com investment.............................          ---             ---        334,000
 Proceeds from sale of property and equipment..............................        7,000          16,000        177,000
 Principal repayments of notes receivable..................................          ---          16,000        107,000
 Other.....................................................................        4,000         (43,000)       (68,000)
                                                                            ------------      ----------      ---------
    Net cash used in investing activities..................................   (1,033,000)     (1,425,000)      (824,000)
                                                                            ------------      ----------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement.............................           ---      (1,767,000)    (4,233,000)
Repurchase of common stock................................................      (406,000)       (242,000)      (126,000)
Payment of deferred financing fees........................................       (45,000)       (150,000)      (259,000)
Proceeds from exercise of warrants........................................           ---             ---         35,000
                                                                             ------------     ------------    ----------
    Net cash used in financing activities..................................     (451,000)     (2,159,000)    (4,583,000)
                                                                             ------------     ------------   -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................    4,309,000       3,139,000     (1,321,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...............................    6,194,000       3,055,000      4,376,000
                                                                            -------------   -------------  ------------
CASH AND CASH EQUIVALENTS, END OF YEAR..................................... $ 10,503,000    $  6,194,000   $  3,055,000
                                                                            ============    ============   ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid for:
  Interest................................................................. $    172,000    $  3,617,000   $  1,049,000
  Income taxes............................................................. $    392,000    $  2,037,000   $  1,880,000
</TABLE>


                      See notes to consolidated financial statements.



<PAGE>


                     BIG DOG HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

         The consolidated financial statements include the accounts of Big Dog
Holdings, Inc. and its subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated.

         The Company principally develops and markets apparel and other consumer
products through Company-operated retail stores, wholesale accounts, catalog and
Internet website.

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments with a maturity of
less than three months when purchased to be cash equivalents.

INVENTORIES

         Inventories, consisting substantially of finished goods, are stated at
the lower of cost (first-in, first-out method) or market.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost, less accumulated
depreciation. Depreciation and amortization of property and equipment are
provided using the straight-line method over the following useful lives:
<TABLE>
            <S>                                                          <C>
           Store fixtures.....................................         5 years
           Machinery and equipment............................         5 years
           Computer equipment.................................         3 years
           Software...........................................         5 years
</TABLE>

Leasehold improvements are depreciated over the lesser of the estimated useful
life of the asset or the term of the lease, whichever is shorter.

IMPAIRMENT OF LONG-LIVED ASSETS

         The Company evaluates the carrying value of long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. This evaluation is
performed based on the estimated undiscounted future cash flows from operating
activities compared with the carrying value of the related asset. If the
undiscounted future cash flows are less than the carrying value, an impairment
loss is recognized, measured by the difference between the carrying value and
the estimated fair value of the assets, with such estimated fair values
determined using the best information available generally based on prices for
similar assets for stores recently opened. The Company's evaluation for years
ended 2003 and 2002, which included all retail locations, indicated that
operating losses existed for certain retail locations with a projection that the
operating losses for these retail locations will continue. As such, the Company
recorded write-downs of leasehold improvements for certain retail stores which
approximated $50,000 and $102,000 for years 2003 and 2002, respectively. Such
costs are included in selling, marketing and distribution expenses in the
consolidated statements of income.

INTANGIBLE ASSETS

         Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets,
which changed the accounting for "indefinite lived" intangibles from an
amortization method to an impairment-only approach. Accordingly, amortization of
intangible assets ceased on December 31, 2001. Beginning in 2002, impairment
tests are performed at least annually and more often as circumstances require.
Management does not believe any impairment of its intangible assets existed at
December 31, 2003.

         Intangible assets, primarily trademark related, are stated at cost,
less accumulated amortization. The Company had additions to trademarks of
$62,000 and $36,000 in fiscal years 2003 and 2002, respectively.
Accumulated amortization was $823,000 at December 31, 2003 and 2002.


DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY

         The Company makes limited use of derivative instruments. On the date
the Company enters into a derivative contract, management designates the
derivative as a hedge for the identified exposure. The Company formally
documents all relationships between hedging instruments and hedged items, as
well as the risk-management objective and strategy for entering into various
hedge transactions. In this documentation, the Company identifies the asset,
liability, firm commitment, or forecasted transaction that has been designated
as a hedged item and indicates how the hedging instrument is expected to hedge
the risks related to the hedged item. The Company formally measures
effectiveness of its hedging relationships both at the hedge inception and on an
ongoing basis in accordance with its risk management policy. The Company would
discontinue hedge accounting prospectively if it is determined that the
derivative is no longer effective in offsetting changes in the hedged item.

REVENUE RECOGNITION

         Substantially all of the Company's revenues are generated by its retail
operations, which are recognized at the time of sale. The Company also generates
revenues through its wholesale, Internet and mail order catalog operations,
which are recognized at the time of shipment. Outbound shipping charges billed
to customers are included in net sales when the products are shipped for
wholesale, Internet and mail order catalog sales. The Company records an
allowance for estimated returns in the period of sale based on prior experience.

INCOME STATEMENT COMPONENTS

         Cost of goods sold consists of the cost of the product and related
overhead costs related to the product, including purchasing, inbound freight
charges, warehouse receiving costs, quality control inspection costs, internal
product development costs and shipping and other handling costs to our stores or
customers.

         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. The
distribution costs included in selling, marketing and distribution expense was
$2,505,000, $2,787,000, and $2,800,000 for the years ended December 31, 2003,
2002, and 2001, respectively.

         General and administrative expenses consist of administrative salaries,
corporate occupancy costs and other corporate expenses.

STORE PREOPENING EXPENSES

         The Company expenses store pre-opening costs as incurred, which totaled
$87,000, $121,000 and $200,000, in 2003, 2002, and 2001, respectively.

ADVERTISING COSTS

         Costs associated with the production of our mail order catalogs are
capitalized and expensed over the expected revenue stream following the mailing
of the respective catalog, generally three months. All other advertising costs
are expensed as incurred. Advertising expense charged to operations for the
years ended December 31, 2003, 2002 and 2001 was $931,000, $1,153,000 and
$1,158,000, respectively. Capitalized advertising costs related to our mail
order catalogs were $87,000 and $0 as of December 31, 2003 and 2002,
respectively, and are included in prepaid expenses and other current assets
on the consolidated balance sheets.

INCOME TAXES

         The Company accounts for income taxes using an asset and liability
approach for measuring deferred income taxes based on temporary differences
between the financial statement and income tax bases of assets and liabilities
existing at each balance sheet date. A valuation allowance is established, when
necessary, to reduce deferred income tax assets to the amount expected to be
realized.

EARNINGS PER SHARE

         Basic earnings per share is calculated based on the weighted average
number of shares outstanding. Diluted earnings 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.
<PAGE>

         The following reconciles the numerator and denominator of the basic and
diluted per-share computations for net income:
<TABLE>

                                                                          YEARS ENDED DECEMBER 31,
                                                                          ------------------------
                                                                      2003           2002           2001
                                                                      ----           ----           ----
<S>                                                                   <C>            <C>            <C>

Net income....................................................     $  2,637,000    $  3,817,000   $  2,640,000
                                                                   ============    ============   ============
Basic Weighted Average Shares:
 Weighted average number of shares outstanding................        8,307,000       8,409,000      8,456,000
Effect of Dilutive Securities:
 Options and warrants.........................................              ---             ---         21,000
                                                                   ------------     -----------   ------------
Diluted Weighted Average Shares:
 Weighted average number of shares outstanding and
 Common share equivalents.....................................         8,307,000       8,409,000      8,477,000
                                                                   =============   =============  =============

Antidilutive options and warrants.............................         1,744,000       1,683,000      1,341,000
                                                                   =============   =============  =============
</TABLE>

         Antidilutive options and warrants consist of the weighted average of
stock options and warrants for the respective years that had an exercise price
greater than the average market price during the year. Such options and
warrants are therefore excluded from the computation of diluted shares.

ACCOUNTING FOR STOCK-BASED COMPENSATION

         SFAS No. 123, Accounting for Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock-Based Compensation, requires companies to
estimate employee stock compensation expense based on the fair value method of
accounting. However, the statement allows the alternative of continued use of
the intrinsic value method described in Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to employees, if pro forma
disclosure of fair value amounts is provided. The Company has elected the
alternative of continued use of APB Opinion No. 25.

         Had compensation cost for the Company's stock option plan been
determined based on their fair value at the grant date for options granted in
2003, 2002, and 2001 consistent with the provisions of SFAS No. 123, the
Company's net income and net income per share would have been adjusted to the
pro forma amounts indicated below:
<TABLE>

                                                                                     YEARS ENDED DECEMBER 31,
                                                                                     ------------------------
                                                                         2003               2002             2001
                                                                         ----               ----             ----
<S>                                                                       <C>              <C>               <C>
Net income:
As reported......................................................      $  2,637,000     $ 3,817,000     $  2,640,000
Deduct:  Total stock-based employee compensation expense determined
under fair value method, net of related tax effects..............           693,000         994,000          632,000
                                                                       --------------   -----------     ------------
Pro forma........................................................      $  1,944,000     $ 2,823,000     $  2,008,000
                                                                       ============     ============    ============
Net income per share:
 As reported:
 Basic and diluted...............................................      $      0.32      $      0.45     $       0.31
 Pro forma:
 Basic and diluted...............................................      $      0.23      $      0.34     $       0.24
</TABLE>


USE OF ESTIMATES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

CONCENTRATION OF CREDIT RISK

         The Company has $8,551,000 of cash on deposit with two different high
credit quality financial institutions in excess of the Federal Deposit Insurance
Corporation limits.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The estimated fair values of receivables, accounts payable and
short-term borrowings approximate their carrying values because of the
short-term maturity of these instruments.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 eliminates
the amortization of intangible assets with indefinite useful lives and
requires intangible assets to be reviewed for impairment at least annually and
expensed to earnings only in the periods in which the recorded value of the
intangible asset is more than the fair value. SFAS No. 142 was effective
for fiscal years beginning after December 15, 2001. This Statement was adopted
in fiscal 2002. Accordingly, amortization of intangible assets ceased on
December 31, 2001.

         In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which provides standards on the accounting for
obligations associated with the retirement of long-lived assets. SFAS No. 143
is effective for fiscal years beginning after June 15, 2002. The adoption of
this statement did not have a significant impact on the Company's consolidated
financial statements.

         In July 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supercedes SFAS No. 121 on the same topic and the accounting and
certain reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business (as defined in that Opinion). This
Statement also amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. SFAS 144 is effective
for fiscal periods beginning after December 15, 2001. The Company implemented
the pronouncement beginning in the first quarter of fiscal year 2002. The
adoption of this statement did not have an impact on the Company's consolidated
financial statements.

         In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses exit or disposal
activities including one-time involuntary employee termination benefits,
contract termination costs and costs to consolidate facilities or relocate
employees. Existing accounting guidelines (principally Emerging Issue Task Force
Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity) require companies to recognize a liability when
management commits itself or announces plans to exit or dispose of an activity.
SFAS No. 146 will prohibit companies from recognizing an exit or disposal
liability until the liability has been incurred, generally the "communication
date" for one-time termination benefits and the contract termination or "cease
use date" for contract costs, and will require these liabilities to be measured
at fair value. This statement is effective for exit or disposal activities
initiated after December 31, 2002. The adoption of the provisions of this
statement did not have an impact on the Company's consolidated financial
statements.

         In December 2002, the FASB issued SFAS No. 148. SFAS No. 123, as
amended by SFAS No. 148, requires companies to estimate employee stock
compensation expense based on the fair value method of accounting. However, the
statement allows the alternative of continued use of the intrinsic value method
described in APB Opinion No. 25, if pro forma disclosure of fair value amounts
is provided. The Company has elected the alternative of continued use of APB
Opinion No. 25.

         In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The adoption of this statement did not have an impact on the Company's
consolidated financial statements.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. SFAS
No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of this statement did not
have an impact on the consolidated financial statements since the
Company currently has no instruments that meet this definition.

         In November 2002, the FASB issued FASB Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which elaborates on required
disclosures by a guarantor in its financial statements about obligations under
certain guarantees that it has issued and clarifies the need for a guarantor to
recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The Company adopted
the provisions of this Interpretation relating to initial recognition and
measurement of guarantor liabilities, which was effective for qualifying
guarantees entered into or modified after January 1, 2003. The adoption of this
interpretation did not have an impact on the Company's consolidated financial
statements.

         In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities - an Interpretation of ARB No. 51, Consolidated Financial
Statements." This interpretation addresses consolidation by business
enterprises of entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. Variable interest entities
are required to be consolidated by their primary beneficiaries if they do not
effectively disperse risks among the parties involved. The primary beneficiary
of a variable interest entity is the party that absorbs a majority of the
entity's expected losses or receives a majority of its expected residual
returns. In December 2003, the FASB amended FIN 46, now known as FIN 46
Revised ("FIN 46R"). The requirements of FIN 46R are effective no later than the
end of the first reporting period that ends after March 15, 2004. A company
that has applied FIN 46 to an entity prior to the effective date of FIN 46R
shall either continue to apply FIN 46 until the effective date of FIN 46R or
apply FIN 46R at an earlier date. The Company does not believe the adoption of
this interpretation will have an impact on the Company's consolidated financial
statements.

RECLASSIFICATIONS

         Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation.

2. PROPERTY AND EQUIPMENT

         Property and equipment consist of the following:
<TABLE>
                                                                            DECEMBER 31,
                                                                            -----------
                                                                          2003            2002
                                                                          ----            ----
         <S>                                                              <C>              <C>
         Leasehold improvements.............................         $ 7,728,000     $ 7,853,000
         Store fixtures.....................................           9,560,000       9,088,000
         Machinery and equipment............................           3,455,000       3,275,000
         Computer equipment and software....................           6,031,000       5,918,000
                                                                       ---------       ---------

                                                                      26,774,000      26,134,000
         Less accumulated depreciation and amortization.....          22,630,000      20,900,000
                                                                      ----------      ----------
         Property and equipment, net........................          $4,144,000      $5,234,000
                                                                      ==========      ==========
</TABLE>


         Depreciation and amortization expense of property and equipment totaled
$2,075,000, $2,560,000 and $3,422,000 in 2003, 2002 and 2001, respectively.

         In May 1999, the Company purchased the building which houses its
downtown Santa Barbara retail store for $1,600,000. In August 1999, the Company
sold this building for $2,119,000 and simultaneously entered into a 10-year
lease. The $527,000 gain related to the sale of this building is being deferred
over the life of the lease.

3. ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES

Accrued liabilities and other current liabilities consist of the following:
<TABLE>

                                                                                  DECEMBER 31,
                                                                                  -----------
                                                                            2003              2002
                                                                            ----              ----
   <S>                                                                      <C>               <C>
  Accrued compensation and benefits........................            $  2,109,000      $  2,315,000
  Sales tax payable........................................                 876,000           852,000
  Store credits............................................                 303,000           266,000
  Other current liabilities................................                 728,000           726,000
                                                                         ----------        ----------
  Total accrued liabilities and other current liabilities..              $4,016,000        $4,159,000
                                                                         ==========        ==========
</TABLE>

4. INVESTMENT IN PETsMART.COM

         In 1999, the Company purchased $2,500,000 of Series D preferred stock
and entered into a strategic relationship agreement and related agreements with
PETsMART.com, Inc. In conjunction with this investment, the Company also made
loans totaling $400,000 to certain officers and other individuals of the Company
to finance their purchase of the Series D preferred stock of PETsMART.com. Such
secured notes bore interest at 9% per annum, payable annually with principal due
in October 2003. In April 2000, the Company purchased $520,000 of PETsMART.com
Series D preferred stock from certain officers and other individuals of the
Company in exchange for cash and the related notes.

         As of December 2000, no public offering for PETsMART.com had occurred
and it was unlikely this event would occur in the foreseeable future.
Additionally, in December 2000, PETsMART.com restructured its ownership and
diluted the Company's ownership position significantly. After careful
consideration of the Internet and capital markets, the Company wrote off the
entire $3,000,000 investment at December 31, 2000. In June 2001, the Company
sold its investment in PETsMART.com for a gain of $334,000, which is included in
Other Income in the consolidated statements of income.

5. SHORT BOND TRANSACTIONS

         During July 2002, the Company entered into two transactions relating to
the short-sale and repurchase of $95,384,000 of U. S. Treasury Securities. The
transactions were intended to address interest rate exposure and generate
capital gains that could be used to offset previously incurred capital losses.
The first transaction, which represented $95,384,000 of U. S. Treasury
Securities, matured on November 15, 2002. In the second transaction, the Company
repurchased $95,384,000 of U. S. Treasury Securities on November 15, 2002. As of
December 31, 2002, the Company had recorded interest income of $3,172,000 and
interest expense of $3,288,000 related to these transactions. The net loss
related to these transactions totaled $116,000. As a result of the transactions,
the Company released $1,050,000 of its deferred tax valuation allowance, as it
was able to utilize the capital losses.

6. SHORT-TERM BORROWINGS

         In October 2001, we entered into a $30,000,000 three-year line of
credit facility with Wells Fargo Retail Finance. This facility was amended in
March 2004 in conjunction with the Company's acquisition of The Walking
Company's assets (See Note 12) which reduced the line to $28,000,000. The line
is secured 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 and prohibits the payment of dividends. Prior
to the amendment, the most significant of these financial covenants was
compliance with certain pre-defined earnings before interest, income taxes,
depreciation and amortization targets. As amended, the most significant covenant
is compliance with certain pre-defined capital expenditures. For all periods
presented, the Company was in compliance with this and all other covenants. This
credit agreement provides for a performance-pricing structured interest charge,
ranging up to LIBOR plus 1.75%, which is based on excess availability levels. As
of December 31, 2003, the Company did not have an outstanding balance under this
credit agreement. The Company had $966,000 of letters of credit outstanding
as of December 31, 2003, which expire through December 2004 and $1,132,000 of
letters of credit outstanding as of December 31, 2002, which expired through
December 2003.

7. INCOME TAXES

         The provision for income taxes consists of the following:
<TABLE>

                                                                    YEARS ENDED DECEMBER 31,
                                                                    -----------------------
                                                               2003          2002           2001
                                                               ----          ----           ----
        <S>                                                     <C>          <C>            <C>
        Current:
            Federal......................................  $  1,224,000    $   510,000   $ 1,707,000
            State........................................       126,000         99,000       330,000
                                                           ------------    -----------   -----------
        Total............................................     1,350,000        609,000     2,037,000
                                                           ------------    -----------   -----------

        Deferred:
            Federal......................................       101,000        (36,000)     (442,000)
            State........................................        38,000         30,000       (83,000)
                                                          -------------   ------------   ------------
        Total............................................       139,000         (6,000)     (525,000)
                                                          -------------   ------------   ------------

        Total income tax provision.......................  $  1,489,000    $   603,000   $ 1,512,000
                                                           ============    ============  ===========
</TABLE>

<PAGE>

         The Company's effective income tax rate differs from the federal
statutory rate due to the following:
<TABLE>

                                                                    YEARS ENDED DECEMBER 31,
                                                                2003            2002          2001
                                                                ----            ----          ----
        <S>                                                     <C>             <C>           <C>
        Federal statutory income tax rate................       34.0%          34.0%         34.0%
        State taxes, net of federal benefit..............        3.6            3.6           3.6
        Valuation allowance..............................        ---          (23.8)          ---
        Other, net.......................................       (1.5)          (0.2)         (1.2)
                                                               -----           ----          ----
        Total............................................       36.1%          13.6%         36.4%
                                                                ====           ====          ====
</TABLE>



         Significant components of the Company's net deferred income tax assets
         are as follows:
<TABLE>

                                                                                  DECEMBER 31,
                                                                                  ------------
                                                                              2003            2002
                                                                              ----            ----
         <S>                                                                   <C>             <C>
        Deferred income tax assets:
            Allowance for doubtful receivables and sales returns.......     $   38,000    $   79,000
            Accrued vacation..........................................         103,000        92,000
            Inventory uniform capitalization...........................        547,000       548,000
            Depreciation...............................................        468,000       547,000
            Intangible assets..........................................        120,000       146,000
            Deferred rent..............................................        239,000       274,000
            Deferred gain on sale of building..........................        119,000       140,000
            Reserve liabilities........................................        293,000       378,000
                                                                            ----------     ---------
        Total deferred income tax assets...............................      1,927,000     2,204,000
                                                                            ----------     ---------

        Deferred income tax liabilities:
            Prepaid expenses...........................................       (89,000)       (91,000)
            State income taxes.........................................       (17,000)      (153,000)
                                                                            ----------      ---------
        Total deferred income tax liabilities..........................      (106,000)      (244,000)
                                                                            ----------      ---------

        Deferred income tax asset.....................................     $1,821,000     $1,960,000
                                                                           ==========     ==========
</TABLE>
7. INCOME TAXES (continued)

         At December 31, 2003 and 2002, there are $875,000 and $853,000 in
current deferred tax assets, respectively, and $946,000 and $1,107,000 in
non-current deferred tax assets, respectively, which are included in the
accompanying consolidated balance sheets.

         In fiscal 2000, the Company had established a valuation allowance of
approximately $1,050,000 which was specifically identified with the $3,000,000
write off of its investment in PETsMART.com (See Note 4). The write off of this
asset represented a capital loss and required the Company to generate capital
gains in order to realize the deferred tax asset. Based on the nature of the
loss, the Company provided this valuation allowance to reduce the deferred tax
asset to an amount which, more likely than not, would be realized. In 2002, the
Company completed two short bond transactions. As a result of the transactions,
the Company released its deferred tax valuation allowance, as it was able to
utilize the capital losses.

8. COMMITMENTS AND CONTINGENCIES

LEASES
         The Company leases retail stores, office buildings and warehouse space
under lease agreements that expire through 2012. Future minimum lease payments
under noncancelable operating leases are as follows:
<TABLE>

YEARS ENDING DECEMBER 31,
------------------------
                  <S>                                                                    <C>

                  2004............................................................     $ 14,383,000
                  2005............................................................       10,454,000
                  2006............................................................        7,095,000
                  2007............................................................        4,186,000
                  2008............................................................        2,053,000
                  Thereafter......................................................        2,592,000
                                                                                        -----------

                  Total...........................................................     $ 40,763,000
                                                                                       ============
</TABLE>

         The above amounts do not include contingent rentals based on sales in
excess of the stipulated minimum that may be paid under certain leases on retail
stores. Additionally, certain leases contain future adjustments in rental
payments based on changes in a specified inflation index. The effective annual
rent expense for the Company is the total rent paid over the term of the lease,
amortized on a straight-line basis. The difference between the actual rent paid
and the effective rent recognized for financial statement purposes is reported
as deferred rent.

         Rent expense for 2003, 2002 and 2001, totaled $16,325,000, $16,711,000
and $16,460,000, respectively, and includes contingent rentals of $370,000,
$345,000 and $475,000 for 2003, 2002, and 2001, respectively, which are
included in operating expenses in the consolidated statements of income.

LITIGATION

         The Company is involved from time to time in litigation incidental to
its business. The Company believes that the outcome of such litigation will not
have a material adverse effect on its results of operation or financial
condition.

9. STOCKHOLDERS' EQUITY

COMMON STOCK

         In March 1998, the Board of Directors authorized the repurchase of up
to $10,000,000 of its common stock. The Company has repurchased 1,455,152 shares
totaling $7,854,000 as of December 31, 2003 and repurchased 1,305,636 shares
totaling $7,448,000 as of December 31, 2002.

         The Company's credit agreement prohibits the payment of dividends. The
Company did not pay a dividend in 2003 and 2002, and does not expect to pay
dividends in the future.

PREFERRED STOCK

         The Company is authorized to issue 3,000,000 of preferred stock. As of
December 31, 2003 and 2002, the Company did not have any preferred stock issued
or outstanding. Under the Company's Certificate of Incorporation, the Board of
Directors is authorized to fix the terms of the preferred stock provided for in
such Certificate.

STOCK OPTIONS

         In August 1997, the Company adopted the 1997 Performance Award Plan to
attract, reward and retain officers and employees. The maximum number of shares
reserved for issuance under this plan was 1,000,000. In February 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. The
Company amended the Plan again in April 2002 to increase the maximum number of
shares reserved for issuance under the Plan to 3,000,000. Awards under this plan
may be in the form of nonqualified stock options, incentive stock options, stock
appreciation rights, restricted stock, performance shares, stock bonuses, or
cash bonuses based upon performance.



The following summarizes stock option activity for the periods presented:
<TABLE>
                                                                                     WEIGHTED-
                                                               NUMBER                AVERAGE
                                                              OF SHARES           EXERCISE PRICE
                                                              ---------           ---------------
<S>                                                           <C>                       <C>

Balance at January 1, 2001..................................  920,250                  6.10

  Options granted............................................ 820,000                  4.52
  Options cancelled.......................................... (76,000)                (5.69)
                                                             ---------
Balance at December 31, 2001................................ 1,664,250                 5.34

  Options granted............................................   94,500                 3.73
  Options cancelled..........................................  (76,500)               (5.89)
                                                             ---------
Balance at December 31, 2002............................     1,682,250                 5.23

  Options granted............................................  128,500                 3.38
  Options cancelled..........................................  (66,250)               (5.06)
                                                             ---------
Balance at December 31, 2003............................     1,744,500                 5.10
                                                             =========
</TABLE>
<PAGE>

The following table summarizes information about stock options outstanding at
December 31, 2003:
<TABLE>

                                                                                                 OPTIONS
                              OPTIONS OUTSTANDING                                              EXERCISABLE
                -----------------------------------------------------------------    -----------------------------
           <S>                   <C>               <C>                    <C>            <C>              <C>
                                                   WEIGHTED-
                                                   AVERAGE               WEIGHTED-                       WEIGHTED
         RANGE OF              OPTIONS            REMAINING              AVERAGE                         AVERAGE
         EXERCISE               OUT-              CONTRACTUAL            EXERCISE      OPTIONS           EXERCISE
          PRICES               STANDING             LIFE                  PRICE        EXERCISABLE       PRICE
         -------              ----------          ----------             -------       ------------      ---------
       $2.90 - 3.60            378,000             7.1 years             $ 3.46          246,000         $ 3.44
        4.00 - 4.63            725,000             7.2 years               4.26          311,400           4.28
        5.00 - 6.50            470,500             4.6 years               6.28          411,050           6.27
            8.00                85,000             4.7 years               8.00           48,500           8.00
       10.00 - 14.00            86,000             4.6 years              10.05           29,925          10.13
                           -----------                                                -----------
        2.90 - 14.00         1,744,500             6.2 years               5.10        1,046,875           5.20
                             =========                                                ==========
</TABLE>

         At December 31, 2003, 2002 and 2001, the number of options exercisable
for each year was 1,046,875, 704,300, and 408,200, respectively. The
weighted-average exercise price of those options was $5.20, $5.33, and $5.49,
respectively.

         The Company accounts for its stock-based awards using the intrinsic
value method in accordance with APB Opinion No. 25 and its related
interpretations. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements.

         The weighted average fair values of the options granted were $2.03,
$3.18, and $3.07 during 2003, 2002, and 2001, respectively. The fair value of
stock-based awards to employees is calculated through the use of an option
pricing model, even though such models were developed to estimate the fair value
of freely tradable, fully transferable options without vesting restrictions,
which significantly differ from the Company's stock option awards. These models
also require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 2003, 2002,
and 2001, respectively: expected volatility of 214%, 224%, and 200%; risk-free
interest rates of 2.7%, 5.4%, and 5.2%,; expected lives of 10.0, 10.0, and 10.0
years.

10. EMPLOYEE BENEFIT PLAN

         The Company has a Retirement Savings Plan (the "Plan"), a defined
contribution plan adopted pursuant to Section 401(k) of the Internal Revenue
Code. The Plan is available to substantially all of the Company's employees. The
Company amended the Plan in November 2000 to match each dollar deferred up to 3%
of compensation, which is limited to $1,000 annually, per participant.
Participants vest in the Company's contribution at varying rates of 0% to 25%
per year over six years. The Company contributed approximately $124,000,
$167,000 and $139,000 in 2003, 2002 and 2001, respectively.

11. RELATED PARTY TRANSACTIONS

         Two of the Company's stockholders and directors have ownership
interests in two former merchandise vendors to the Company. Merchandise
inventory purchased from these related vendors totaled $75,000 and $250,000 in
2003 and 2001, respectively. There were no purchases made in 2002.

         In the normal course of business, one of the Company's officers pays
for certain operating expenses which are reimbursed by the Company. At December
31, 2003 and 2002, the related outstanding payable was $116,000 and $68,000,
respectively.

         See discussion of related party guarantees in Note 12.

12. SUBSEQUENT EVENT

         On March 3, 2004, the Company, through a newly formed subsidiary,
acquired through bankruptcy substantially all the assets and assumed certain
liabilities of The Walking Company. The Walking Company (TWC) is a leading
specialty retailer (operating 72 stores) of high quality comfort walkwear shoes
and accessories. The total purchase price for the acquisition was approximately
$19 million, subject to adjustment. The purchase price included the payment of
cash and issuance of notes to certain creditors of approximately $9,000,000 and
$4,000,000, respectively, the assumption of certain short and long term
obligations of approximately $2,800,000 and incurrence of acquisition related
fees totaling approximately $2,600,000. Additionally, certain creditors were
issued 10% of TWC's outstanding common stock (valued at $645,000), with a right
(in the form of warrants) to convert the TWC shares into shares of common stock
of the Company at a price of $4.35 per share and a right to put such TWC shares
to TWC for cash totaling $645,000. The notes issued to certain creditors also
include provisions that allow the creditors to put a portion of their debt to
TWC and/or the Company at a predetermined discount or convert a portion of
their debt to the Company common stock at a price of $4.35 per share. These
provision and warrants expire on June 30, 2004. The total number of shares of
Company common stock issuable under all of such warrants and put provisions is
1,067,817. Additionally, included in the purchase were guarantees made by:
(1) the Company for certain real estate leases, and (2) the Chairman of the
Board and Chief Executive Officer of the Company with regard to a potential
$2,900,000 disputed administrative claim and the obligation of the Company to
make payment of the potential exercise of put rights, which were provided in
response to demands of creditors. The consideration to the Chairman and Chief
Executive Officer for providing such guarantees includes that the Company and
TWC granted them the right to purchase the foregoing notes issued to the
creditors and related rights,in the event such notes are put to the Company or
TWC at the purchase price the Company or TWC would be obligated to pay for them
under the put. The Company is currently evaluating the additional contribution
cost allocable to the purchase related to the fair value of the guarantees.

         In conjunction with the acquisition, the Company contributed $8,950,000
to TWC ($6,450,000 as equity and $2,500,000 in subordinated debt.) The
contribution was funded through earnings of the Company and borrowings under its
current line of credit agreement totaling $7,500,000 and $1,450,000 was drawn on
a new two year $3,000,000 unsecured revolving promissory note facility with
Israel Discount Bank. The revolving facility bears interest at prime plus 1% and
is guaranteed by the Chairman of the Company for which he received a 2.5%
guarantee fee of $75,000. At March 3, 2004, the Company had $1,450,000 million
outstanding under this facility.

         In addition to the line of credit agreement amended in March 2004 (Note
6), of which $2,800,000 was outstanding on March 3, 2004, TWC entered into a new
$17,500,000 revolving credit facility with Wells Fargo Retail Finance on March
2, 2004. The line is secured by substantially all of TWC assets and requires
daily, weekly and monthly financial reporting as well as compliance with
financial, affirmative and negative covenants and prohibits the payment of
dividends, among other things. The most significant of these financial covenants
is compliance with certain pre-defined earnings before interest and
depreciation, accounts payable to inventory ratio covenant and capital
expenditures. This credit agreement provides for a performance-pricing
structured interest charge, ranging up to LIBOR plus 2.75%, which is based on
excess availability levels. As of the March 3, 2004, TWC had approximately
$3,000,000 outstanding under this credit agreement and $500,000 of outstanding
letters of credit.
<PAGE>

13. QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
                                                         FIRST        SECOND        THIRD       FOURTH
                                                        QUARTER      QUARTER       QUARTER      QUARTER
                                                        -------      -------       -------      --------
                                                             (in thousands, except per share)
    <S>                                                   <C>         <C>             <C>        <C>
    Year ended December 31, 2003:
     Net sales......................................    $15,354       $24,208       $29,487      $34,708
     Gross profit...................................      8,103        14,218        16,829       19,582
     Selling, marketing and distribution expense....     11,311        11,883        12,390       13,505
     General and administrative expenses............      1,201         1,333         1,189        1,476
     Total operating expenses.......................     12,512        13,216        13,579       14,981
     (Loss)income from operations...................     (4,409)        1,002         3,250        4,601
     Net (loss)income...............................     (2,750)          559         1,947        2,881
     Net (loss)income per share.....................
      Basic and diluted.............................    $ (0.33)       $ 0.07        $ 0.24       $ 0.35
     Weighted average shares outstanding
      Basic.........................................      8,393         8,330         8,264        8,243
      Diluted.......................................      8,393         8,330         8,265        8,248

    Year ended December 31, 2002:
     Net sales......................................    $17,546       $25,763       $30,114      $35,333
     Gross profit...................................      9,266        15,008        17,417       20,095
     Selling, marketing and distribution expense....     11,836        12,342        13,117       14,233
     General and administrative expenses............      1,224         1,227         1,289        1,512
     Total operating expenses.......................     13,060        13,569        14,406       15,745
     (Loss)income from operations...................     (3,794)        1,439         3,011        4,350
     Net (loss)income...............................     (2,383)          793         1,736        3,671
     Net (loss)income per share.....................
      Basic and diluted.............................    $ (0.28)       $ 0.09        $ 0.21       $ 0.44
     Weighted average shares outstanding
      Basic.........................................      8,460         8,393         8,393        8,393
      Diluted.......................................      8,460         8,404         8,393        8,393

</TABLE>












<PAGE>


                      Chief Executive Officer Certification

I, Andrew D. Feshbach, President and Chief Executive Officer of Big Dog
Holdings, Inc., certify that:

1.  I have reviewed this report on Form 10-K of Big Dog Holdings, Inc., (the
    "Registrant");

2.  Based on my knowledge, this Annual Report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this report, fairly present in all material respects
    the financial condition, results of operations and cash flows of the
    Registrant as of, and for, the periods presented in this report;

4.  The Registrant's other certifying officers and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-15 and 15d-15e) for the Registrant and have:

    a. designed such disclosure controls and procedures or caused such
       disclosure controls and procedures to be designed under our supervision
       to ensure that material information relating to the Registrant, including
       its consolidated subsidiaries, is made known to us by others within those
       entities, particularly during the period in which this report is being
       prepared;

    b. evaluated the effectiveness of the Registrant's disclosure controls and
       procedures and presented in this report our conclusions about the
       effectiveness of the disclosure controls and procedures, as of the end
       of the period covered by this report based on such evaluation; and

    c. disclosed in this report any change in the Registrant's internal control
       over financial reporting that occurred during the Registrant's most
       recent fiscal quarter (the Registrant fourth quarter in the case of
       an annual report) that has materially affected, or is reasonably likely
       to materially affect, the Registrant's internal control over financial
       reporting; and

5.  The Registrant's other certifying officers and I have disclosed, based on
    our most recent evaluation of internal control over financial reporting, to
    the Registrant's auditors and the audit committee of Registrant's board of
    directors (or persons performing the equivalent functions):

    a. all significant deficiencies and material weaknesses in the design or
       operation of internal controls over financial reporting which are
       reasonably likely to adversely affect the Registrant's ability to record,
       process, summarize and report financial information; and

    b. any fraud, whether or not material, that involves management or other
       employees who have a significant role in the Registrant's internal
       controls over financial reporting.



Dated:   March 30, 2004

                                     By /s/ANDREW D. FESHBACH
                                     ----------------------------
                                     Andrew D. Feshbach
                                     Chief Executive Officer and President



<PAGE>



                      Chief Financial Officer Certification


I, Roberta J. Morris, Chief Financial Officer of Big Dog Holdings, Inc.,
   certify that:

1.  I have reviewed this report on Form 10-K of Big Dog Holdings, Inc.,
    (the "Registrant");

2.  Based on my knowledge, this Annual Report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this report, fairly present in all material
    respects the financial condition, results of operations and cash flows of
    the Registrant as of, and for, the periods presented in this report;

4.  The Registrant's other certifying officers and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-15 and 15d-15e) for the Registrant and have:

    a. designed such disclosure controls and procedures or caused such
       disclosure controls and procedures to be designed under our supervision
       to ensure that material information relating to the Registrant, including
       its consolidated subsidiaries, is made known to us by others within those
       entities, particularly during the period in which this report is being
       prepared;

    b. evaluated the effectiveness of the Registrant's disclosure controls and
       procedures and presented in this report our conclusions about the
       effectiveness of the disclosure controls and procedures, as of the end
       of the period covered by this report based on such evaluation; and

    c. disclosed in this report any change in the Registrant's internal control
       over financial reporting that occurred during the Registrant's most
       recent fiscal quarter (the Registrant fourth quarter in the case of
       an annual report) that has materially affected, or is reasonably likely
       to materially affect, the Registrant's internal control over financial
       reporting; and

5.  The Registrant's other certifying officers and I have disclosed, based on
    our most recent evaluation of internal control over financial reporting, to
    the Registrant's auditors and the audit committee of Registrant's board of
    directors (or persons performing the equivalent functions):

    a. all significant deficiencies and material weaknesses in the design or
       operation of internal controls over financial reporting which are
       reasonably likely to adversely affect the Registrant's ability to record,
       process, summarize and report financial information; and

    b. any fraud, whether or not material, that involves management or other
       employees who have a significant role in the Registrant's internal
       controls over financial reporting.




Dated:   March 30, 2004

                                         By /s/ROBERTA J. MORRIS
                                         ----------------------------
                                         Roberta J. Morris
                                         Chief Financial Officer



<PAGE>

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
<TABLE>
                                                                Additions
                                                                ---------
                                                                Charged
                                                                -------
                                                                (Reductions
                                                                -----------
                                                 Balance at     Credited) to    Write-offs,
                                                 ----------     ------------    ----------
                                                 Beginning      Costs and       Net of         Balance at
                                                 ---------      ---------       ------         ----------
                                                 of Year        Expense         Recoveries     End of Year
                                                 -------        -------         ----------     -----------
<S>                                                <C>           <C>              <C>             <C>
Year ended December 31, 2001
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts
receivable.....................................   $ 117,000      $ 473,000     $  (2,000)       $ 588,000


Year ended December 31, 2002
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts
receivable......................................  $ 588,000      $  68,000     $(455,000)       $ 201,000

Year ended December 31, 2003
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts
receivable......................................  $ 201,000      $ (25,000)    $ (80,000)       $  96,000
</TABLE>





<PAGE>



                                INDEX TO EXHIBITS

Exhibit Number    Description
--------------    -----------

2.1               Second Amended Plan of Reorganization of Shoes Liquidation Co.
                  (formerly The Walking Company) and Alan's Shoes, Inc.,
                  confirmed on March 2, 2004. (1)

2.2               Order of the United States Bankruptcy Court for the Central
                  District of California confirming the Second Amended Plan of
                  Reorganization of Shoes Liquidation Co. (formerly The Walking
                  Company) and Alan's Shoes, Inc., entered on March 2, 2004.(1)

3.1               Amended and Restated Certificate of Incorporation (2)

3.1A              Certificate of Correction (3)

3.2               Amended and Reinstated Bylaws (3)

4.1               Reference is hereby made to Exhibits 3.1, 3.1A, and 3.2

4.2               Specimen Stock Certificate (2)

4.3               Warrant, dated March 3, 2004, to purchase 55,188 shares of
                  the common stock of Big Dog Holdings, Inc. at an exercise
                  price of $4.35 per share, exercisable by the tender of common
                  stock of The Walking Company (formerly TWc Acquisition Corp.),
                  issued to Retail & Restaurant Growth Capital L.P.
                  Substantially identical Warrants were issueD to a total of 16
                  additional junior secured creditors of Shoes Liquidation Co.
                  (formerly The Walking Company) and Alan's Shoes, Inc., in the
                  names and amounts indicated in the schedule attached to
                  Exhibit 4.3. (1)

4.4               Warrant, dated March 3, 2004, to purchase up to 286,978
                  shares of  the common stock of Big Dog Holdings, Inc. at an
                  exercise price of $4.35 per share, exercisable by the tender
                  of Junior Secured Creditors Promissory Notes issued by
                  The Walking Company (formerly TWC Acquisition Corp.), issued
                  to Retail & Restaurant Growth Capital L.P.Substantially
                  identical Warrants were issued to a total of 16 additional
                  junior secured creditors of Shoes
                  Liquidation Co. (formerly The Walking Company) and Alan's
                  Shoes, Inc., in the names and amounts indicated in the
                  schedule attached to Exhibit 4.4. (1)

4.5               Warrant, dated March 3, 2004, to purchase up to 164,611
                  shares of  the common stock of Big Dog Holdings, Inc. at an
                  exercise price of $4.35 per share, exercisable by the tender
                  of a First Unsecured Creditors Promissory Note issued
                  by The Walking Company (formerly TWC Acquisition Corp.),
                  issued to the Post-Confirmation Committee for the benefit
                  of the unsecured creditors of  Shoes Liquidation Co.
                 (formerly The Walking Company) and Alan's Shoes, Inc. (1)

4.6               Warrant, dated March 3, 2004, to purchase up to 4,938 shares
                  of  the Common Stock of Big Dog Holdings, Inc. at an
                  exercise price of $4.35 per share, exercisable by the
                  tender of a Second Unsecured Creditors Promissory Note issued
                  by The Walking Company (formerly TWC Acquisition Corp.),
                  issued to the Post-Confirmation Committee for the benefit
                  of the unsecured creditors of  Shoes Liquidation Co.
                  (formerly The Walking Company) and Alan's Shoes, Inc. (1)

4.7               Junior Secured Creditors Promissory Notes, dated March 3,
                  2004, in the aggregate principal amount of $3,279,000,
                  issued by The Walking Company (formerly TWC Acquisition Corp.)
                  to the junior secured creditors of Shoes Liquidation
                  Co. (formerly The Walking Company) and Alan's Shoes, Inc.
                 (the "Debtors") pursuant to the Debtors' Second Amended
                  Plan of Reorganization.(1)


4.8               First Unsecured Creditors Promissory Note, dated March 3,
                  2004, in the principal amount of $700,000, issued by The
                  Walking Company (formerly TWC Acquisition Corp.) to the
                  Post-Confirmation Committee for the benefit of the unsecured
                  creditors of Shoes Liquidation Co. (formerly The Walking
                  Company) and Alan's Shoes, Inc. (the "Debtors") pursuant to
                  the Debtors' Second Amended Plan of Reorganization.(1)

4.9               Second Unsecured Creditors Promissory Note, dated March 3,
                  2004, in the principal amount of $21,000, issued by The
                  Walking Company (formerly TWC Acquisition Corp.) to the
                  Post-Confirmation Committee for the benefit of the unsecured
                  creditors of  Shoes Liquidation Co. (formerly The Walking
                  Company) and Alan's Shoes, Inc. (the "Debtors") pursuant
                  to the Debtors' Second Amended Plan of Reorganization (1)

10.10             Amended and Restated 1997 Performance Award Plan (5)

10.10A            Form of Employee Nonqualified 1997 Performance Award Plan (2)

10.10B            Terms and Conditions for Non-Qualified Options Granted under
                  the Amended and Restated 1997 Performance Award Plan (4)

10.10C            Form of Eligible Director Non-Qualified Stock Option Agreement
                  (4)

10.11             Lease between Big Dog USA, Inc. and The Prudential  Insurance
                  Company of America dated November 4, 1997 (3)

10.12             Form of Indemnification Agreement (1)

21.1              List of Subsidiaries of Big Dog Holdings, Inc.

23.1              Independent Auditors' Consent

24.1              Power of Attorney (included in signature page)

32.1              Certification of Chief Executive Officer and Chief Financial
                  Officer Pursuant to 18 U.S.C. Section 1350,as Adopted Pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002

99.1              Loan and Security Agreement, dated March 3, 2004, among the
                  lenders signatory thereto, Wells Fargo Retail Finance
                  II, LLC, as agent, and The Walking Company (formerly TWC
                  Acquisition Corp.), as borrower.(1)

99.2              Third Amendment to Loan and Security Agreement, dated March 3,
                  2004, among the lenders signatory thereto, Wells
                  Fargo Retail Finance II, LLC, as agent, and Big Dog Holdings,
                  Inc., Big Dog USA, Inc. and CSI Acquisition Corporation, as
                  borrowers.(1)


(1)      Incorporated by reference from the Company's Current Report on Form 8-K
         filed as of March 3, 2004. The exhibits and schedules to the Plan have
         been omitted from this filing pursuant to Item 601(b)(2) of Regulation
         S-K. Big Dog Holdings, Inc. will furnish copies of any of such exhibits
         and schedules to the Securities and Exchange Commission upon request.
(2)      Incorporated by reference from the Company's S-1 Registration Statement
         (No. 333-33027) as amended , which became effective September 25, 1997.
(3)      Incorporated by reference from the Company's Annual Report on Form 10-K
         for the year ended December 31, 1997.
(4)      Incorporated by reference from the Company's Schedule TO filed
         July 31, 2000.
(5)      Incorporated by reference from the Company's Annual Report on Form
         10-K for the year ended December 31, 1998.