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, 1999
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
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(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. [ X ]
The aggregate market value of Common Stock held by non-affiliates of
the registrant on March 1, 2000 was approximately $23.4 million. 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, 2000, the registrant had 12,000,350 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive
Proxy Statement for the 2000 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>
PART I
ITEM 1. BUSINESS
GENERAL
Big Dog Holdings, Inc. and its subsidiaries ("Big Dogs" or the
"Company") 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 the Company believes 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, Big Dogs initiated a strategy of leveraging
the brand through dramatic expansion of its product line and rapid growth in its
retail stores. The number of the Company's stores has grown from 5 in 1993 to
191 as of December 31, 1999.
The Company's collection is centered around its signature BIG DOGS(R)
name, logo and "Big Dog" characters and is 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 the Company's 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 its 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. Big Dogs accomplishes this primarily
through (i) selling its 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, when they are engaged in
leisure or recreational activities. Furthermore, the Company believes that 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, the Company believes that the positive image the
brand brings to being a "Big Dog" has a special appeal to large-size customers.
The Company's apparel products, which include a wide variety of basic apparel
and related products, are developed 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, the Company has expanded its LITTLE BIG DOGS(R) line of infants' and
children's apparel and its BIG BIG DOGS(R) line of big-size apparel. The Company
has also expanded its non-apparel products, including plush animals, stationery
and pet products, which feature Big Dog graphics and are developed to complement
its apparel.
The Company reinforces its brand image by distributing BIG DOGS(R)
products primarily through its own retail stores. This distribution strategy
enables the Company to present a complete selection of its merchandise in a
creative and fun environment. In addition, this strategy enables it to more
effectively reach its targeted customers by locating stores in tourist-oriented
and other casual environments where it believes consumers are more likely to be
in the "Big Dog state of mind." The Company operates its retail stores in both
outlet and full-price formats, depending on the location. In addition to its
retail stores, Big Dogs markets its products through other channels, including
its catalog, better wholesale accounts and website.
BUSINESS STRATEGY
Big Dogs' mission is to build a brand that is recognized throughout the
world for providing high quality, good value and fun and functional products. To
achieve this goal, the Company has adopted the following operating strategies:
PROMOTE THE BIG DOG SPIRIT OF FUN. A key and unique element in the
Company's brand image is its focus on fun. This spirit of fun revolves around
the Company's Big Dog character that has broad appeal to men, women and children
of all ages. The Company fosters this spirit by creating positive, humorous,
topical and inspiring graphics and slogans which it applies to its merchandise.
More than just a logo, the Big Dog represents the leader, athlete, child,
comedian, musician, boss, traveler, parent and dog lover in everyone. 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. Big Dogs' focus on fun is further enhanced by the lively,
enjoyable atmosphere in its retail stores and is also reflected in its catalog
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 its products
feature unique graphics characterized by advanced print techniques, as well as
unique appliques and embroideries on many of its apparel products. The Company
believes that this combination of quality fabrics and graphics in its apparel
products provides the customer with a product that has an exceptional look and
feel. Big Dogs is able to deliver this level of quality at reasonable prices
primarily as a result of (i) selling its own brand direct to the consumer, (ii)
low-cost product development, (iii) sourcing of basic apparel, and (iv) low
marketing costs. The Company believes that delivering quality and value is
instrumental in generating customer appeal and brand loyalty for its 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. The Company believes it has a special
competency in creating distinctive, popular graphics which it uses to
differentiate its products from those of its competitors. Big Dogs has developed
a broad assortment of classic, functional clothing ("basics") in traditional,
less fashion-forward colors. The Company's focus on basics and its ability to
leverage its graphics across multiple product categories have allowed the
Company to eliminate the need for a traditional buyer or design staff, and
thereby lower its product development costs compared to most fashion apparel
companies. Furthermore, since its graphics are added in the last stage of
production, the Company is able to be more responsive to customer preferences
while also lowering its inventory risk.
TARGET A BROAD, DIVERSE CUSTOMER BASE. Big Dogs believes it has
established an All-American, family-oriented brand featuring products, graphic
themes, slogans and promotions that appeal to a broad range of consumers.
Although its marketing focus is on baby boomers and their kids, Big Dogs'
customers include men, women and children of all ages, and span a wide range of
geographic areas and income levels. Furthermore, the Company believes 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, the Company believes that the positive image the brand
brings to being a "Big Dog" has a special appeal to big-size customers.
MAINTAIN CONTROLLED DISTRIBUTION. Big Dogs sells its products primarily
through its own stores and, to a lesser extent, through its catalog and website.
By selling direct to its customers, Big Dogs is able to present its
complete line of merchandise in a creative and fun environment. This also allows
it to target its customers more precisely by locating its stores in
tourist-oriented and other high-traffic areas, where the Company believes
consumers are more likely to be in the "Big Dog state of mind." Selling direct
to the consumer also allows the Company (i) to enhance its margins while still
providing customer value, (ii) to be more responsive to customer feedback,
especially with regard to new product development, (iii) to reduce its need to
build brand awareness through large-scale media advertising, and (iv) to collect
customer names for its 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 its graphic art and humor, including in-store "T-shirt walls" and
other displays that are designed to immediately put the customer in the "Big Dog
state of mind." By showcasing the Company's 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. The
Company believes the customer's shopping experience is further enhanced by the
Company's knowledgeable and enthusiastic sales staff.
EMPHASIZE GRASSROOTS MARKETING. The Company believes its most effective
marketing is its products themselves and their presentation in the Company's
retail stores, catalog and website. As a result, the Company has spent
relatively little on advertising. Also important to Big Dogs' marketing strategy
is its targeted "grassroots" marketing activities. These activities include
local and charity sponsorships (such as high school sports teams),
community-oriented promotional events (such as the Company's annual dog parade
in Santa Barbara), and corporate cross-promotions with leading consumer product
companies (such as Nabisco and PETsMART.com).
The Company's continued growth will depend to a significant degree on
its ability to open and operate new stores, to increase net sales and
profitability from the Company's existing stores, and to expand its other
sources of revenue. Big Dogs' primary growth strategy is the continued expansion
of its retail stores. The Company opened 14 net new stores in 1999. The Company
opens stores in locations and venues that management believes best target its
customers and can be obtained on terms that meet its unit profitability
requirements. Depending on the location, the Company will open new stores in
either an outlet or full-price format. Accordingly, the Company anticipates that
the stores it opens in the near future will be located in a variety of venues,
including outlet malls, stand-alone stores in tourist areas, tourist-oriented
malls, regional malls and metropolitan locations. These new markets and venues
have in the past presented, and will continue to present, competitive and
merchandising challenges that are different from those faced by the Company in
its existing markets and venues.
MERCHANDISING
Big Dogs' product line features a branded, lifestyle collection of
unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. Big Dogs' 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. Big Dogs
has also in recent years further expanded its product lines to include not only
a wide variety of apparel accessories, but also a collection of gift and
consumer products. The Company continuously explores opportunities to further
leverage its brand and graphics into new product lines.
The Company's 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 its distinctive graphics, the Company
believes it has achieved recognition for the quality and performance of its
products. For example, the Company's solid nylon volley shorts and madras plaid
shorts were selected by the Atlanta Committee for the Olympic Games to be
officially licensed shorts for the 1996 Atlanta Olympics.
The majority of the Company's products range from between $4 and $45.
The following table sets forth the approximate contribution that each of the
Company's product categories made to total net sales in the Company's retail
stores for the year ended December 31, 1999:
<TABLE>
<CAPTION>
% OF TOTAL
RETAIL STORE*
NET SALES
------------
<S> <C>
Adult Apparel and Accessories .................................... 55.3%
Infants' and Children's Apparel and Accessories .................. 21.0
Big-size Apparel ................................................. 17.8
Non-Apparel Products ............................................. 5.9
-----
Total ................................................... 100.0%
=====
</TABLE>
*Does not include mail order, wholesale and internet sales.
ADULT APPAREL AND ACCESSORIES. Big Dogs sells a complete line of adult
unisex activewear and casual sportswear. The Company offers screen-printed and
embroidered T-shirts and sweatshirts, in a variety of styles and colors, that
generally prominently display the Big Dogs graphics and slogans. In addition,
the Company offers 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. The Company's
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
Company's classic, popular items and graphics have been in the Big Dogs line
with very little change for over 10 years, the Company introduces new apparel
and other products throughout the year to ensure that the merchandise
assortments are consistent with the top sellers within its competitive market.
Big Dogs leverages its trademarks, characters and more popular graphics
by carefully translating them to a wide variety of apparel accessories,
including caps, ties, socks, sunglasses, bags, watches and wallets. These
products are developed and introduced based on their consistency with Big Dog's
brand image and whether they complement the Company's other products. The
Company's introduction of accessories not only provides an opportunity to create
add-on purchases, but also minimizes product development costs and inventory
risk by utilizing graphics and slogans that have first proven popular on the
Company's graphic T-shirts.
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. The
Company sells its LITTLE BIG DOGS(R) line primarily through its retail stores,
catalog and website, and wholesales it to certain specialty and better
department stores.
BIG-SIZE APPAREL. The Company believes that 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. In the spring of 1996, the Company
significantly expanded its BIG BIG DOGS(R) category targeting big-size
customers. The Company's 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 generally prominently display the Big Dogs graphic
themes and slogans. In addition, the Company 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. The Company sells its BIG BIG DOGS(R) line
primarily through its retail stores, catalog and website, and also through
selected wholesale accounts.
NON-APPAREL PRODUCTS. Big Dogs further leverages its 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, mousepads and screen
savers. 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 the Company's other products. As with apparel accessories, the
graphics applied to these products have first proven popular on the Company's
T-shirts, resulting in lower product development costs and inventory risk. In
general, non-apparel items have higher gross margins than many of the Company's
other products.
MARKETING
The Company strives to maintain a consistent brand image through the
coordination of its merchandising, marketing and sales efforts. The goal of the
Company's marketing efforts is to present a distinctive image of quality, value
and fun that consumers will associate with the Company's products and thereby
enhance the BIG DOGS(R) brand image. The BIG DOGS(R) brand image has been
developed with relatively little advertising, as the Company believes its most
effective marketing is its products themselves and their presentation in the
Company's retail stores, catalog and website. The Company's catalog and website
serve not only as a means of product distribution, but also as key marketing
pieces for the Company's retail stores.
Also important to the Company's marketing strategy is its targeted
"grassroots" marketing activities. These activities include local and charity
sponsorships (such as high school sports teams), community-oriented promotional
events (such as the Company's annual dog parade in Santa Barbara), and corporate
cross-promotions with leading consumer product companies (such as Nabisco and
PETsMART.com). The Company trains and incentivizes its store managers to
actively involve their stores in local, grassroots activities. In addition, the
Company utilizes billboard advertising designed to direct customers to local Big
Dogs retail stores.
In August 1999, the Company entered into a strategic relationship with
PETsMART.com, Inc., a premier internet site for pet supplies and pet care needs.
Under their agreement, the Company and PETsMART.com each provide joint marketing
efforts, including direct mail marketing and sponsorship on each other's
websites. The Company also licensed its trademarks to PETsMART.com and its
affiliate, PETsMART, Inc., for pet products. As part of this relationship, the
Company invested $2.5 million in PETsMART.com. in a venture capital financing on
the same terms provided to the other venture capital firm investors. The Company
also received a warrant for the purchase of PETsMART.com stock exercisable at
increasing prices starting above the price at which the Company invested in the
venture capital financing. The Company sold a warrant to PETsMART.com for the
purchase of 121,000 shares of common stock of the Company at an exercise price
of $10 per share. PETsMART.com, Inc. has filed a registration statement for an
initial public offering of its common stock; however, there is currently no
public market for its stock and there can be no assurance that one will develop.
RETAIL STORES
Big Dogs seeks to create a distinctive and fun shopping environment in
its stores through the innovative display of its graphic art and humor,
including in-store "T-shirt walls" and other displays designed to immediately
put the customer in the "Big Dog state of mind." In addition, the Company's
cross-merchandising and colorful signage are designed to add excitement in the
stores and prompt add-on purchases. While maintaining a consistent Big Dog
"look" throughout the chain, many stores incorporate graphics and props which
are consistent with the store's local environment (for example, a car racing
theme in Indianapolis and an Old Spanish Days theme in Santa Barbara). By
showcasing the Company's 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 1999, the Company's retail stores contributed approximately 92% of
total net sales. As of December 31, 1999, the Company operated 191 stores in 43
states and three stores in England and Canada. 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 the
"Big Dog state of mind." In making site selections, the Company also considers 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.
<PAGE>
The table below sets forth the number of stores located in each state or country
as of the end of 1999:
<TABLE>
<CAPTION>
State No. of Stores State No. of Stores
----- ------------- ----- -------------
<S> <C> <C>
Alabama 2 Missouri 4
Alaska 1 Nebraska 1
Arizona 7 Nevada 3
California 36 New Hampshire 2
Colorado 3 New Jersey 2
Connecticut 2 New Mexico 1
Delaware 3 New York 7
Florida 11 North Carolina 6
Georgia 5 Ohio 4
Hawaii 2 Oklahoma 1
Idaho 2 Oregon 6
Illinois 4 Pennsylvania 8
Indiana 4 South Carolina 5
Iowa 1 Tennessee 6
Kansas 2 Texas 7
Louisiana 1 Utah 2
Maine 2 Vermont 1
Maryland 4 Virginia 4
Massachusetts 4 Washington 5
Michigan 5 Wisconsin 4
Minnesota 4 Wyoming 1
Mississippi 3
Country No. of Stores Country No. of Stores
- ------- ------------- ------- -------------
United Kingdom 1 Canada 2
</TABLE>
The Company operates its retail stores in both outlet and full-price
formats, depending on the location. 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. The Company anticipates
that the stores it opens in the near future will be in a variety of venues,
including outlet malls, stand-alone stores in tourist areas, tourist-oriented
malls, regional malls and metropolitan locations.
The Company's outlet mall stores average approximately 2,800 square
feet. The Company's outlet stores offer a complete and current line of the
Company's products priced approximately 25% less than the same items are sold
for in the Company's catalog and website, the Company's full-price stores and by
other retailers. In addition, the Company has tested a smaller format store
which it intends to open in certain circumstances. This smaller format will
carry substantially all of the Company's product categories, but will be more
densely merchandised to accommodate the smaller square footage. The Company
opened 14 net new stores during 1999. The Company's cost to open a store in
1999, including leasehold improvements and furniture and fixtures, was
approximately $50,000 (net of tenant improvement allowances), a reduction of
approximately $17,000 per store compared to the prior year. The average per
store initial inventory (partially financed by trade payables) for the new 1999
stores was approximately $64,000 and pre-opening expenses averaged approximately
$13,000 per store. The average total cost to build new stores will vary in the
future, depending on various factors, including local construction costs,
changes in store format and design and tenant improvement allowances.
Big Dogs store operations are managed by an Executive Vice
President--Retail, four regional managers and approximately 23 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. The Company
seeks to further enhance its customers' shopping experience by developing a
knowledgeable and enthusiastic sales staff to distinguish Big Dogs from its
competition. In this regard, the Company has implemented employee training and
incentive programs and encourages its sales associates to be friendly and
courteous and to guide customers to graphics and products that tie into their
individual interests. The Company believes its commitment to customer service
enhances its ability to generate repeat business and to attract new customers.
The Company also believes that the fun nature of its products and the growth of
the Company create employee enthusiasm and positive morale that in turn enhance
customer service and contribute to the fun shopping experience.
NON-RETAIL DISTRIBUTION
Non-retail channels of distribution, including catalog, wholesale and
corporate sales, and, to a lesser extent, premium programs, international and
internet sales, contributed approximately 8% of the Company's total net sales in
1999.
CATALOG. Introduced in late 1992, the Company's catalog is a key
marketing piece for its products and stores, and enables it to reach customers
who are not located near a Big Dogs store. The Company's proprietary mailing
list has been developed largely through sign-ups by customers in its retail
stores rather than through active prospecting. Big Dogs' proprietary mailing
list has over 700,000 active customer names. The Company's catalog and internet
sales in 1999 were approximately $4.2 million, or approximately 4% of total net
sales.
WHOLESALE. During 1999, the Company sold to over 600 wholesale accounts
throughout the United States. The Company's wholesale sales in 1999 were
approximately $4.1 million, or approximately 4% of total net sales.
INTERNET. In June 1999, Big Dogs launched a limited offering of its
products online at its www.BIGDOGS.com website. Based on the initial success of
this e-commerce site, the Company substantially upgraded the website and made
its entire product line available online in October 1999. As a result, internet
sales increased rapidly in the fourth quarter and totaled $0.6 million for the
year. The Company believes it has significant opportunities for internet sales
because of the Company's focus on graphics and apparel that is not only
character-driven but basic in design and therefore easy to describe. The Company
also believes the internet will enhance its product distribution by increasing
access to customers who do not generally visit outlet centers where the
Company's stores are primarily located. The Company is positive about its future
prospects on the internet, especially since Big Dogs owns its own brand and
controls its pricing and distribution.
INTERNATIONAL. During 1999, the Company's sales outside of the United
States were limited to three retail stores in Canada and England and incidental
other sales. The Company plans to expand the sale of its products
internationally through efficient, profitable and brand-enhancing means, which
may vary by country and may include retail stores, exporting to resellers,
licensing, catalog and internet sales.
ENTERTAINMENT AND OTHER BRAND LEVERAGING. Big Dogs intends to carefully
evaluate and pursue opportunities to leverage the power of the BIG DOGS(R) brand
through various activities that are consistent with the brand image, which may
include selective product licensing, co-branding and entertainment and media
activities. In July 1999, the Company entered into an agreement with Hartbreak
Films, Inc., the successful producer of the ABC television show "Sabrina, the
Teenage Witch," for the joint development of a television series (or feature
film or home video) based upon the Company's "Big Dog" character. The Company
and Hartbreak are currently seeking the backing of a major studio for such
project.
SOURCING
DOMESTIC AND INTERNATIONAL SOURCING. The Company does not own or
operate any manufacturing facilities and sources its products through
third-party contractors with manufacturing facilities that are primarily
overseas. The Company believes that outsourcing allows it 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 the Company to leverage working capital, transfer risk and
focus its energy and resources on merchandising, marketing and sales.
Big Dogs' domestic sourcing is primarily limited to graphic T-shirts.
The bulk of its graphic T-shirt business is managed in-house. This includes
management of screen printing and blanks, but not screen printing operations.
The majority of Big Dogs' other products are manufactured overseas,
primarily in Asia. In order to reduce the Company's exposure to production risks
and delays arising from trade disputes, political disruption or other factors
relating to any one vendor or country, the Company utilizes a diverse group of
vendors. Big Dogs sources product from approximately 100 unaffiliated vendors,
including over 35 foreign vendors in a number of countries, with a significant
portion being produced by contractors with manufacturing facilities in China. In
order to enhance its sourcing flexibility, the Company uses purchasing agents
rather than operate its own foreign sourcing office. These agents assist the
Company in selecting and overseeing third-party vendors, sourcing fabric and
monitoring quotas and other trade regulations. The Company does not have supply
contracts with any of its suppliers. Although the loss of major suppliers could
have a significant effect on the Company's immediate operating results, the
Company believes alternate sources of merchandise for most product categories
are available at comparable prices and that it could replace these suppliers
without any long-term adverse effect on the Company.
The Company forecasts production requirements to secure necessary
manufacturing capacity and quota. Since the Company's foreign manufacturers are
located at greater geographic distances from the Company than its domestic
manufacturers, the Company generally allows greater lead-times for foreign
orders. However, due to the Company's focus on widely available basics rather
than fashion items, the Company believes these lead times do not present
significant risks.
QUALITY CONTROL. The Company's quality control program is designed to
ensure that all goods bearing BIG DOGS(R) trademarks meet the Company's
standards. With respect to its products, the Company, through its employees and
sourcing agents, develops and inspects prototypes of each product prior to
manufacture. For apparel products, the Company, 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.
The Company or its sourcing agents inspect the final product prior to shipment
to the Company's warehouse or at the warehouse prior to payment.
MANAGEMENT INFORMATION SYSTEMS
The Company is committed to utilizing technology to enhance its
competitive position. The Company has 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 its
stores and customers and improve the integration and efficiency of its domestic
and foreign sourcing operations. Big Dogs' MIS system 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
Novell server network and utilize Island Pacific software. The Company's
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 and e-mail 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.
The Company evaluates 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 the Company's inventory is performed
centrally at the store, merchandise classification and SKU levels using
integrated third-party software. Utilizing its MIS capabilities, the Company's
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 the Company's retail
stores.
The Company's main warehouse facility and its mail order warehouse and
fulfillment facility are located in a 136,000 square-foot distribution facility
in Santa Fe Springs, California. All merchandise is delivered by vendors to this
facility, where it is inspected, entered into the Company's allocation software
system, picked and boxed for shipment to the stores or customers. The Company
ships merchandise to its 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) and BIG BIG DOGS(R). In addition, the Company has
registered certain of its trademarks or has registration applications pending in
over 14 other countries. The Company regards its trademarks and other
proprietary rights as valuable assets and believes that they have significant
value in the marketing of its products. From time to time the Company discovers
products in the marketplace that the Company believes infringe upon its
trademark rights. The Company vigorously protects its trademarks against
infringement, including through the use of cease and desist letters,
administrative proceedings and lawsuits.
COMPETITION
Although the level and nature of competition differ among the Company's
product categories, the Company 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 the Company's products are highly
competitive. The Company believes that its long-term competitive position will
depend upon its 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 the Company believes it does not
compete directly with any single company with respect to its entire range of
merchandise, within each merchandise category the Company competes with
well-known apparel and specialty retail companies such as The GAP, Eddie Bauer,
Warner Brothers Stores 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. Many of Big Dogs'
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, 2000, the Company had approximately 600 full-time and 700
part-time employees. The number of part-time employees fluctuates significantly
based on seasonal needs. None of the Company's employees are covered by
collective bargaining agreements and the Company considers its relations with
its employees to be good.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, titles and present and past
positions of persons serving as executive officers of the Company as of March 1,
2000:
NAME AGE POSITION
- ---- --- --------
Andrew D. Feshbach 39 President, Chief Executive Officer
and Director
Douglas N. Nilsen 51 Executive Vice President -
Merchandising
Anthony J. Wall 44 Executive Vice President -
Business Affairs, General Counsel
and Secretary
Andrew W. Wadhams 39 Executive Vice President - Retail
Roberta J. Morris 40 Chief Financial Officer, Treasurer
and Assistant Secretary
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 June
1992 until May 1997, Mr. Feshbach also served as Chief Financial Officer of the
Company. Mr. Feshbach co-founded Fortune Fashions Inc. ("Fortune Fashions"), a
custom manufacturer of embellished apparel in 1991 and has served 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 serves as a director
of The Right Start, Inc., an infant products retailer and catalog company. Mr.
Feshbach has an M.B.A. from Harvard University.
DOUGLAS N. NILSEN joined the Company in October 1995 and has served as
Executive Vice President--Merchandising since December 1995. From October 1995
until December 1995, he served as Senior Vice President of the Company. 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. From 1976 to 1990,
Mr. Nilsen was employed by Macy's California in various capacities, most
recently as Vice President of Merchandising in both the Accessories and Men's
Divisions. Mr.Nilsen has an M.B.A. from New York University.
ANTHONY J. WALL joined the Company in September 1994 and has served as
Executive Vice President since March 1996. He has also served as General Counsel
and Secretary of the Company since September 1994. He served as a director of
the Company from November 1995 until September 1997 and also as Senior Vice
President from September 1994 until March 1996. From 1981 until 1994, Mr. Wall
practiced as an attorney with Gibson, Dunn & Crutcher and, from 1990 until 1994,
was a partner in the corporate department of that firm. Mr. Wall also serves as
General Counsel of Fortune Fashions Inc., General Counsel of Fortune Casuals,
LLC, a manufacturer of casual apparel for the mass market, and Vice President of
Fortune Financial. Mr. Wall has a J.D. from the University of Southern
California.
ANDREW W. WADHAMS joined the Company in August 1996 as Senior Vice
President--Retail and has served as Executive Vice President--Retail since
January 1999. From January 1994 to June 1996, Mr. Wadhams served as Vice
President of Retail Operations of Imaginarium, Inc., a retailer of children's
games and educational items. From 1986 to November 1993, Mr. Wadhams was
employed in various capacities by The Gap Inc. in its Gap, GapKids, Gap
International and Banana Republic divisions, most recently as Regional Manager--
Retail Operations of Banana Republic from 1991 to 1994.
ROBERTA J. MORRIS joined the Company in August 1993 and has served as
Chief Financial Officer since March 1998, having previously served as Senior
Vice President--Finance since January 1995 and as Vice President--Finance of the
Company from August 1993 to January 1995. From 1988 to August 1993, Ms. Morris
was employed by Deloitte & Touche LLP, a national accounting firm, serving as a
Senior Manager from August 1992 until August 1993. Ms. Morris is a certified
public accountant.
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate headquarters are in leased offices comprising
approximately 24,000 square feet in Santa Barbara, California. This lease
expires July 2004, with an option to extend for another 5 years. The Company's
distribution facility is located in Santa Fe Springs, California in a building
comprising approximately 136,000 square feet under a lease that expires in
January 2008. The Company has an option to extend this lease for five years.
The Company currently leases all of its store locations. Store leases
are typically for a 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to
its business. Management believes that the outcome of the current litigation
will not have a material adverse effect upon the financial statements of the
Company.
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 the Company is traded on the NASDAQ National Market
under the symbol BDOG. The following table sets forth, for the period from the
first quarter 1998 through the fourth quarter 1999, the high and low "sales"
price of the shares of Common Stock of the Company, as reported on the NASDAQ
National Market.
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
High Low High Low
----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 9 1/2 $ 4 5/8 $ 7 1/2 $ 5 1/8
Second Quarter 6 1/8 4 1/2 7 1/2 4 1/2
Third Quarter 6 5 1/8 5 5/8 2 7/8
Fourth Quarter 8 1/2 5 6 1/8 2 1/8
</TABLE>
On March 1, 2000, the last sales price of the Common Stock as reported
on the NASDAQ National Market was $5 5/8 per share. As of March 1, 2000, there
were approximately 154 shareholders of record of the Company's Common Stock.
The Company paid no dividends in 1998. In February 1999, the Board of
Directors approved an annual discretionary cash dividend to be determined by the
Board each year based on the Company's year-end sales results. This dividend was
declared in the amount of $0.10 per share and paid in March 1999. The future
amount and payment of such annual dividend will be at the discretion of the
Board and will depend upon the Company's earnings, capital requirements,
financial condition and other factors considered relevant by the Board.
On August 31, 1999, the Company sold a warrant for the purchase of
121,000 shares of common stock of the Company to PETsMART.com, Inc. for $121,000
with an exercise price of $10 per share. See Item 1. Business-Marketing. Such
sale was deemed to be exempt from registration under the Securities Act of 1933
in reliance on Section 4(2), as a transaction not involving a public offering.
<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.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- --------
(in thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ 109,573 $ 100,677 $ 86,181 $ 68,683 $ 51,541
Cost of goods sold............... 46,491 41,236 36,328 29,720 21,571
--------- --------- -------- -------- --------
Gross profit..................... 63,082 59,441 49,853 38,963 29,970
Selling, marketing and --------- --------- -------- -------- --------
distribution expenses.......... 50,125 47,809 39,549 32,309 24,814
General and administrative
expenses....................... 5,020 5,276 4,738 3,937 3,167
--------- ---------- -------- -------- --------
Total operating expenses......... 55,145 53,085 44,287 36,246 27,981
--------- ---------- -------- -------- --------
Operating income................. 7,937 6,356 5,566 2,717 1,989
Interest (income) expense........ (395) (350) 1,268 1,647 1,189
--------- ---------- -------- -------- --------
Income before provision for
income taxes.................... 8,332 6,706 4,298 1,070 800
Provision for income taxes....... 3,136 2,674 1,633 435 162
--------- ---------- -------- -------- --------
Net income....................... $ 5,196 $ 4,032 $ 2,665 $ 635 $ 638
========= ========== ======== ======== ========
Net income per share
Basic and diluted............... $ 0.43 $ 0.32 $ 0.24 $ 0.06 $ 0.07
Weighted average common shares
Basic........................... 12,032 12,472 10,965 9,978 9,503
Diluted......................... 12,182 12,509 11,187 10,049 9,503
Cash dividend per common share... $ 0.10 $ 0.00 $ 0.00 $ 0.00 $ 0.00
OPERATING DATA:
Number of stores(1)
Stores open at beginning of
period......................... 177 150 121 91 51
Stores added (net of closures).. 14 27 29 30 40
--- --- --- --- ---
Stores open at end of period.... 191 177 150 121 91
Comparable stores sales increase(2) 1.0% 0.6% 6.6% 3.5% 8.2%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- --------
(amounts in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital................. $32,462 $30,348 $35,468 $13,742 $ 8,030
Total assets.................... 56,413 52,994 52,584 25,773 19,011
Total indebtedness (3).......... 0 0 0 15,697 10,732
Stockholders' equity............ 46,660 43,187 45,541 6,142 4,737
</TABLE>
(1) Excludes two temporary stores open for a portion of 1995, four temporary
stores open for a portion of 1996, and one temporary store open for a portion
of 1998.
(2) Comparable store sales represent net sales of stores open at least one
full year. Effective December 31, 1997, the Company changed the way
comparable store sales were calculated, and for comparison purposes all prior
years have been restated. 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 change to this method did not
significantly affect previously reported comparable store sales percentages.
The Company believes this method better reflects the effect of one-time
promotional events and is more consistent with industry methods.
(3) Includes subordinated debt, obligations under the bank line of credit and
obligations under capital leases. All indebtedness was paid off with a
portion of the proceeds from the Company's initial public offering in
September 1997.
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.
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 Company stores has grown
from 5 in 1993 to 191 as of December 31, 1999.
<PAGE>
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>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0%
Cost of goods sold..................... 42.4 41.0 42.2
----- ----- -----
Gross profit........................... 57.6 59.0 57.8
Selling, marketing and distribution
expenses............................. 45.8 47.5 45.9
General and administrative expenses.... 4.6 5.2 5.5
----- ----- -----
Total operating expenses............... 50.4 52.7 51.4
----- ----- -----
Income from operations................. 7.2% 6.3% 6.5%
</TABLE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES. Net sales consist of sales from the Company's stores, catalog,
website, and wholesale accounts, all net of returns and allowances. Net sales
increased to $109.6 million in 1999 from $100.7 million for 1998, an increase of
$8.9 million, or 8.8%. Of the $8.9 million increase, $7.6 million was
attributable to stores not yet qualifying as comparable stores and $0.8 million
came from the 1.0% comparable store sales increase for the period. Additionally,
non-retail sales increased by $0.5 million for the year, which is primarily
related to the Company's agreement with PETsMART.com. The increase in net sales
in 1999 was attributable to continued growth in the number of stores and in the
children's, big-size and non-apparel categories. The Company's children's,
big-size and non-apparel products continued to increase to 45% of total retail
net sales from 43% of total retail net sales in 1998.
GROSS PROFIT. Gross profit increased to $63.1 million in 1999 from
$59.4 million for 1998, an increase of $3.7 million, or 6.2%. As a percentage of
net sales, gross profit decreased to 57.6% in 1999 from 59.0% in 1998. This
decrease as a percentage of net sales was primarily attributable to an increased
level of promotional activity and continued sales in products other than
t-shirts, which have a lower margin.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses consist of expenses associated with creating,
distributing, and selling products through all channels of distribution,
including occupancy, payroll and catalog costs. Selling, marketing and
distribution expenses increased to $50.1 million in 1999 from $47.8 million in
1998, an increase of $2.3 million, or 4.8%. As a percentage of net sales, these
expenses decreased to 45.8% in 1999 from 47.5% in 1998. In early 1998, the
Company moved its distribution center to a larger facility in order to build the
infrastructure necessary to accommodate growth. During the first half of 1998,
the Company did not realize this growth and, therefore, the Company incurred a
decrease in operating leverage. Subsequently, controls were put in place and
improvements were made in the second half of 1998 and throughout 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of administrative salaries, corporate occupancy costs and other
corporate expenses. General and administrative expenses decreased to $5.0
million in 1999 from $5.3 million in 1998. As a percentage of net sales, these
expenses decreased to 4.6% in 1999 from 5.2% in 1998. The decrease in general
and administrative expenses is attributable to improved cost controls in 1999,
as well as the leverage of spreading them over a larger revenue base.
INTEREST INCOME AND EXPENSE. Interest income remained constant at $0.4
million for the years ended 1999 and 1998.
<PAGE>
YEARS ENDED DECEMBER 31, 1998 AND 1997
NET SALES. Net sales increased to $100.7 million in 1998 from $86.2
million for 1997, an increase of $14.5 million, or 16.8%. Of the $14.5 million
increase, $13.3 million was attributable to stores not yet qualifying as
comparable stores and $0.5 million came from the 0.6% comparable store sales
increase for the period. Additionally, non-retail sales increased by $0.7
million for the year. The increase in net sales in 1998 was attributable to
continued growth in the number of stores and in the children's, big-size and
non-apparel categories. The Company's children's, big-size and non-apparel
products continued to increase to 43% of total retail net sales from 41% of
total retail net sales in 1997.
GROSS PROFIT. Gross profit increased to $59.4 million in 1998 from
$49.9 million for 1997, an increase of $9.5 million, or 19.0%. As a percentage
of net sales, gross profit increased to 59.0% in 1998 from 57.8% in 1997. This
increase as a percentage of net sales was primarily attributable to better
sourcing of certain key products. Also contributing to the percentage increase
were continued improvements in merchandising, planning and allocation, which led
to better product sell-throughs and less markdowns.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses increased to $47.8 million in 1998 from $39.5 million in
1997, an increase of $8.3 million, or 21.0%. As a percentage of net sales, these
expenses increased to 47.5% in 1998 from 45.9% in 1997. In early 1998, the
Company moved its distribution center to a larger facility in order to build the
infrastructure necessary to accommodate growth. During the first and second
quarters of 1998, the Company did not realize this growth and, therefore, the
Company incurred a decrease in operating leverage. Subsequently, controls were
put in place and improvements were made in the third quarter. In the fourth
quarter of 1998, the Company's selling, marketing and distribution expense was
38.3% of net sales as compared to 38.5% for the same period in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $5.3 million in 1998 from $4.7 million in 1997. As a
percentage of net sales, these expenses decreased to 5.2% in 1998 from 5.5% in
1997, reflecting the leverage of spreading them over a larger revenue base.
INTEREST INCOME AND EXPENSE. Interest income increased to $0.4 million
in 1998 from $1.3 million in interest expense in 1997. In October 1997, the
Company's initial public offering closed and all debt was paid off with a
portion of the net proceeds. Cash was held in a money market fund.
SEASONALITY AND QUARTERLY RESULTS
The Company believes its seasonality is somewhat different than many
apparel retailers since a significant number of the Company's stores are located
in tourist areas and outdoor malls that have different visitation patterns than
urban and suburban retail centers. The third and fourth quarters (consisting of
the summer vacation, back-to-school and Christmas seasons) have historically
accounted for the largest percentage of the Company's annual net sales and
profits. In 1999, excluding sales generated by stores not open for all of 1999,
substantially all the Company's operating income and approximately 28% and 35%
of the Company's net retail sales were generated during the third and fourth
quarters, respectively.
The Company's 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 1999, the Company's primary uses of cash were for the build-out
of the second-floor mezzanine at the Company's distribution facility, new
stores, investment in PETsMART.com Series D preferred stock, payment of income
taxes, payment of cash dividends and stock repurchases. The Company satisfied
its cash requirements primarily from cash flow from operations, proceeds from
the sale of a building and excess cash. In March 1998, the Company's Board of
Directors authorized the Company to repurchase up to $10 million of its common
stock. As of December 31, 1999, the Company had repurchased 1,183,200 shares for
$7,006,000.
<PAGE>
Cash provided by operating activities was $11.8 million and $3.1
million in 1999 and 1998, respectively. The $8.7 million increase in cash
provided from operations is primarily attributable to the decrease in
inventories. At December 31, 1999 and 1998 inventories were $19.2 million and
$23.3 million, respectively.
Cash used in investment activities in 1999 and 1998 was $5.7 million
and $6.8 million, respectively. Cash flows used in investment activities during
1999 related primarily to a $2.5 million investment in PETsMART.com Series D
preferred stock, opening 14 net new stores for $1.0 million, retrofitting
existing stores for $0.9 million, improvements at the Company's distribution
facility including build-out of a second-floor mezzanine totaling $0.5 million,
and issuance of long-term notes receivable to certain officers and employees
totaling $0.5 million.
Cash used in financing activities during 1999 and 1998 was $1.6 million
and $6.4 million, respectively. In 1999 the Company paid a discretionary
dividend of $0.10 per share to stockholders for a total dividend payment of $1.2
million and repurchased 100,000 shares of its common stock for a total purchase
price of $0.5 million. In 1998 the Company repurchased 1,083,200 shares of its
common stock for $6.5 million.
The Company has a borrowing arrangement with a bank whereby the Company
may, from time to time and upon approval from the bank, borrow up to $8 million.
Such borrowings may be used for cash advances and letters of credit. The
borrowing arrangement provides for interest at the bank's prime rate less 3/8%
or 250 basis points over the LIBOR rate and is collateralized by substantially
all the assets of the Company. As of December 31, 1999, the Company had no
advances and $1.9 million of letters of credit outstanding. The letters of
credit expire through April 5, 2000.
In 1999, the Company's average cost to build a new store, including
leasehold improvements, furniture and fixtures and landlord allowances, was
approximately $50,000. 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 landlord allowances. The Company's
average initial inventory for new stores opened in 1999 was approximately
$64,000. The Company's initial inventory for new stores will vary in the future
depending on various factors, including store concept and square footage. The
Company believes that its existing cash balances and cash generated from
operations will be sufficient to fund its operations and planned expansion
through 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company will adopt
SFAS No. 133 in the year ending December 31, 2000. The Company anticipates that
the adoption of SFAS No. 133 will not have a material impact on the Company's
financial statements.
YEAR 2000
The Year 2000 issue is the result of computer programs being written to
use two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failure or miscalculations causing
disruptions of operations.
In March 1999, the Company completed the upgrading of its major
software systems to a new release which has been certified as Year 2000
compliant. Additionally during 1999, the Company completed the internal testing
of its information technology systems and addressed its non-information
technology related systems. The Company also requested all third-party vendors
to certify Year 2000 compliance. The costs of the Company's Year 2000 compliance
project were not material to the Company's financial position.
The Company has not experienced significant Year 2000-related issues
over the Year 2000 transition. Although the Company believes it has taken the
appropriate steps to address Year 2000 readiness, there is no guarantee that the
Company's efforts will prevent a material adverse impact on the results of
operations and financial condition.
<PAGE>
INFLATION
The Company does not believe that inflation has had a material effect
on operations in the past year. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
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 the Company's 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 and costs, the impact of year 2000 compliance and inflation
risks. Uncertainties to which the foregoing and other aspects of the Company's
business may be subject include those discussed below in regard to factors that
may effect quarterly results discussed below, the factors affecting the costs of
building new stores, and other risks and uncertainties discussed below. All
forward-looking statements in this document are based upon information available
to the Company on the date hereof, and the Company assumes no obligation to
update any such forward-looking statements. Notwithstanding the Company's growth
in sales and profitability during recent periods, the Company faces significant
risks and, as a result, there can be no assurance that the Company's historical
growth will be indicative of future performance.
Other factors that could cause actual results to differ materially from
the forward-looking statements contained in this report, as well as affect the
registrant's ability to achieve its financial and other goals, include, but are
not limited to, the following:
CHANGES IN CONSUMER PREFERENCES. The consumer products industry in
general, and the apparel industry in particular, are subject to changing
consumer demands and preferences. Although the Company believes its products
historically have not been significantly affected by fashion trends, the
Company's products are subject to changing consumer preferences. The Company's
success will depend significantly on its 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, consumer preferences
could shift away from the Company's traditional graphic and logo-oriented
merchandise.
ABILITY TO ACHIEVE FUTURE GROWTH. The Company's continued growth will
depend to a significant degree on its ability to open and operate profitable new
stores, to increase net sales and profitability of the Company's existing
stores, and to expand its other sources of revenue. There can be no assurance
that new stores will achieve sales and profitability levels consistent with
existing stores. The Company's retail expansion is dependent on a number of
factors, including the Company's ability to locate and obtain favorable store
sites, and to negotiate acceptable lease terms. In addition, there can be no
assurance that the Company's strategies to increase other sources of revenue,
which may include expansion of its catalog business, wholesale business,
internet business, corporate sales, international sales, licensing, co-branding
and media and entertainment activities, will be successful or that the Company's
overall sales or profitability will increase or not be adversely affected as a
result of any such expansion.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is
significantly dependent on the performance of its key management, particularly
Chief Executive Officer, Andrew Feshbach, and Executive Vice
President--Merchandising, Doug Nilsen.
DEPENDENCE ON THIRD-PARTY AND FOREIGN MANUFACTURERS. The Company does
not own or operate any manufacturing facilities and is therefore dependent on
third parties for the manufacture of its products. The loss of major suppliers,
or the failure of such suppliers to timely deliver the Company's products or to
meet the Company's quality standards, could adversely affect the Company's
ability to deliver products to its customers in a timely manner.
The majority of the Company's products are purchased from vendors with
manufacturing facilities located outside the United States, primarily in Asia
and particularly in China. The Company's operations could be adversely affected
by events that result in disruption of trade from foreign countries in which the
Company's suppliers are located.
<PAGE>
The Company's staff or agents periodically visit and observe the
operations of its foreign and domestic manufacturers, but the Company does not
control such manufacturers or their labor practices. Therefore the Company
cannot necessarily prevent legal or ethical violations by its independent
manufacturers, and it is uncertain what impact such violations would have on the
Company.
SUBSTANTIAL COMPETITION. The markets for each of the Company's products
are highly competitive. The Company believes that its long-term competitive
position will depend upon its 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.
FACTORS AFFECTING STORE TRAFFIC. The large majority of the Company's
stores are located in tourist areas, tourist-serving areas and outlet malls, and
the Company's sales depend on a high level of traffic in these locations. The
Company, therefore, depends on the ability of these tourist destinations and
malls to continue to generate a high volume of consumer traffic in the vicinity
of the Company's stores. Tourism and outlet mall traffic may be adversely
affected by domestic and international economic downturns, adverse weather,
natural disasters, changing consumer preferences, highway or surface street
traffic, the closing of high-profile stores near the Company's stores and
declines in the desirability of the shopping environment in a particular tourist
destination or mall.
RELIANCE ON INFORMATION SYSTEMS. The Company relies on various
information systems to manage its operations and regularly makes investments to
upgrade, enhance or replace such systems. Substantial disruptions affecting the
Company's information systems could have an adverse affect on its business.
CONTROL BY EXISTING STOCKHOLDERS AND ANTI-TAKEOVER PROVISIONS. As of
March 1, 2000, the Chairman of the Board, Fred Kayne, beneficially owned
approximately 49.7% of the Company's outstanding Common Stock and the Company's
current directors and executive officers, including Mr. Kayne, collectively
beneficially own over 50%. As a result, Mr. Kayne, acting either individually or
with the Company's current directors and executive officers, will be able to
control the election of directors, and to determine the outcome of any other
matter submitted to a vote of the Company's stockholders. This concentration of
ownership, together with the anti-takeover effects of certain provisions of the
Delaware General Corporation Law and the Company's Certificate of Incorporation
and Bylaws, may have the effect of delaying or preventing a change in control of
the Company, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the
prevailing market price of the Common Stock.
VOLATILITY OF STOCK PRICE. The price of the Company's shares has and
may continue to fluctuate based upon a number of factors, including,
quarter-to-quarter variations in the Company's results of operations,
fluctuations in the Company's comparable store sales, the performance of other
manufacturers and retailers, and the condition of the overall economy.
DEPENDENCE ON TRADEMARKS. The Company uses 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. There can be no assurance, however,
that the Company will not be restricted in the future expansion of its use of
its trademarks to certain new, non-apparel product categories.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe it has material exposure to losses from
market-rate sensitive instruments. The Company has not invested in derivative
financial instruments. The Company has a borrowing arrangement with a bank
whereby the Company may borrow at a floating rate. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company had no borrowings
under this arrangement as of December 31, 1999 and 1998, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements" at Item 14(a) for a
listing of the consolidated financial statements filed as part of this report.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers" in Part I, Item 1 hereof for information
regarding the executive officers. 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.
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(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. Financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
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 29, 2000 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.
SIGNATURE TITLE DATE
- --------------------- ------------------------- --------------
/s/ANDREW D. FESHBACH Chief Executive Officer, March 29, 2000
- --------------------- President and Director
Andrew D. Feshbach (Principal Executive
Officer)
/s/ROBERTA J. MORRIS Chief Financial Officer, March 29, 2000
- --------------------- Treasurer and Assistant
Roberta J. Morris Secretary(Principal
Financial and Accounting
Officer)
/s/FRED KAYNE Chairman of the Board March 29, 2000
- ------------------
Fred Kayne
/s/STEVEN C. GOOD Director March 29, 2000
- ------------------
Steven C. Good
/s/ROBERT H. SCHNELL Director March 29, 2000
- --------------------
Robert H. Schnell
/s/KENNETH A. SOLOMON Director March 29, 2000
- ---------------------
Kenneth A. Solomon
/s/DAVID J. WALSH Director March 29, 2000
- ------------------
David J. Walsh
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998, and 1997
PAGE
----
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-3
Consolidated Statements of Income for the years ended December 31,
1999, 1998, and 1997..................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31,1999, 1998, and 1997......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998, and 1997..................................................... F-6
Notes to the Consolidated Financial Statements........................... F-7
<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 subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Big Dog Holdings, Inc. and
subsidiary as of December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 15, 2000, except for Note 10,
as to which date is March 1, 2000
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C>
1999 1998
------------ ------------
ASSETS (Note 4)
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 17,925,000 $ 13,458,000
Receivables:
Trade, net.................................................. 425,000 592,000
Other....................................................... 543,000 314,000
Inventories (Note 8)......................................... 19,950,000 23,345,000
Prepaid expenses and other current assets.................... 1,107,000 811,000
Deferred income taxes (Note 5)............................... 875,000 872,000
------------ ------------
Total current assets.......................................... 40,825,000 39,392,000
PROPERTY AND EQUIPMENT, Net (Notes 2 and 8)................... 12,037,000 12,983,000
INTANGIBLE ASSETS, Net........................................ 117,000 30,000
OTHER ASSETS (Note 3)......................................... 3,434,000 589,000
------------ -----------
TOTAL......................................................... $ 56,413,000 $ 52,994,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable (Note 8).................................... $ 3,411,000 $ 3,494,000
Income taxes payable ........................................ 1,768,000 2,621,000
Accrued expenses and other current liabilities............... 3,184,000 2,928,000
------------ ------------
Total current liabilities..................................... 8,363,000 9,043,000
DEFERRED RENT (Note 6)........................................ 878,000 764,000
DEFERRED GAIN ON SALE-LEASEBACK (Note 2)...................... 512,000 --
------------ ------------
Total liabilities............................................ 9,753,000 9,807,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Notes 3, 7, and 10):
Preferred stock, $.01 par value, 3,000,000 shares authorized,
none issued and outstanding................................. $ -- $ --
Common stock $.01 par value, 30,000,000 shares authorized,
13,183,550 shares issued at December 31, 1999 and 1998...... 132,000 132,000
Additional paid-in capital................................... 42,417,000 42,296,000
Retained earnings............................................ 11,750,000 7,764,000
Treasury stock, 1,183,200 and 1,083,200 shares at
December 31, 1999 and 1998, respectively.................... (7,006,000) (6,494,000)
Notes receivable from common stockholders.................... (633,000) (511,000)
----------- ------------
Total stockholders' equity.................................. 46,660,000 43,187,000
----------- ------------
TOTAL......................................................... $ 56,413,000 $ 52,994,000
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
--------- -------- ---------
NET SALES (Note 3)........................ $ 109,573,000 $ 100,677,000 $ 86,181,000
COST OF GOODS SOLD (Note 8)............... 46,491,000 41,236,000 36,328,000
------------- ------------- -------------
GROSS PROFIT.............................. 63,082,000 59,441,000 49,853,000
------------- ------------- -------------
OPERATING EXPENSES:
Selling, marketing and distribution...... 50,125,000 47,809,000 39,549,000
General and administrative (Note 8)...... 5,020,000 5,276,000 4,738,000
------------- ------------- ------------
Total operating expenses................ 55,145,000 53,085,000 44,287,000
------------- ------------- ------------
INCOME FROM OPERATIONS.................... 7,937,000 6,356,000 5,566,000
INTEREST (INCOME) EXPENSE, NET (Note 4).. (395,000) (350,000) 1,268,000
------------- ------------- ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES........................... 8,332,000 6,706,000 4,298,000
PROVISION FOR INCOME TAXES (Note 5)...... 3,136,000 2,674,000 1,633,000
------------- ------------- ------------
NET INCOME............................... $ 5,196,000 $ 4,032,000 $ 2,665,000
============= ============ ============
NET INCOME PER SHARE
BASIC AND DILUTED....................... $ 0.43 $ 0.32 $ 0.24
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL TREASURY STOCK RECEIVABLE
--------------- PAID-IN RETAINED ------------------ FROM COMMON
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT STOCKHOLDERS TOTAL
------ ------ ---------- -------- ------- ------- ------------ ---------
BALANCE,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1997 10,160,550 $ 102,000 $ 5,705,000 $ 1,067,000 $ (732,000) $ 6,142,000
Common stock issued..... 2,800,000 28,000 35,548,000 -- -- 35,576,000
Options exercised....... 55,000 1,000 170,000 -- -- 171,000
Warrants exercised...... 144,000 1,000 551,000 -- -- 552,000
Collections of notes
receivable............. -- -- -- -- 185,000 185,000
Tax benefits related to
exercise of stock
options (Note 7)....... -- -- 250,000 -- -- 250,000
Net income.............. -- -- -- 2,665,000 -- 2,665,000
---------- -------- ------------ --------- ---------- ----------
BALANCE,
DECEMBER 31, 1997........ 13,159,550 132,000 42,224,000 3,732,000 (547,000) 45,541,000
Warrants exercised...... 24,000 -- 72,000 -- -- 72,000
Repurchased common
stock (Note 7)......... -- -- -- -- 1,083,200 $(6,494,000) -- (6,494,000)
Collections of notes
receivable............. -- -- -- -- -- -- 36,000 36,000
Net income.............. -- -- -- 4,032,000 -- -- -- 4,032,000
--------- ------- ---------- --------- --------- ------------ ------- ---------
BALANCE,
DECEMBER 31, 1998........ 13,183,550 132,000 42,296,000 4,764,000 1,083,200 (6,494,000) (511,000) 43,187,000
Cash dividend paid....... -- -- -- (1,210,000) -- -- -- (1,210,000)
Repurchased common
stock (Note 7)......... -- -- -- -- 100,000 (512,000) -- (512,000)
Warrants issued.......... -- -- 121,000 -- -- -- -- 121,000
Interest on notes
receivable.............. -- -- -- -- -- -- (122,000) (122,000)
Net income............... -- -- -- 5,196,000 -- -- -- 5,196,000
---------- --------- ------------- ------------- --------- ----------- --------- -----------
BALANCE,
DECEMBER 31, 1999........ 13,183,550 $ 132,000 $ 42,417,000 $ 11,750,000 1,183,200 $(7,006,000) $(633,000) $46,660,000
========== ========= ============= ============= ========= =========== ========= ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income................................................................ $ 5,196,000 $ 4,032,000 $ 2,665,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................ 4,088,000 3,752,000 2,620,000
Provision for losses on receivables...................................... 21,000 26,000 25,000
(Gain) Loss on disposition of property and equipment..................... (503,000) 123,000 37,000
Deferred income taxes.................................................... (3,000) (728,000) --
Changes in operating assets and liabilities:
Receivables............................................................. (83,000) (181,000) 194,000
Inventories............................................................. 3,395,000 (6,631,000) (1,311,000)
Prepaid expenses and other assets....................................... (296,000) (67,000) (266,000)
Accounts payable........................................................ (83,000) 727,000 1,532,000
Income taxes payable.................................................... (853,000) 1,226,000 1,245,000
Accrued expenses and other current liabilities.......................... 256,000 697,000 420,000
Deferred rent........................................................... 114,000 114,000 162,000
Deferred gain on sale-leaseback......................................... 512,000 -- --
---=------- ----------- -----------
Net cash provided by operating activities.............................. 11,761,000 3,090,000 7,323,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................... (4,745,000) (6,508,000) (5,285,000)
Investments............................................................... (2,626,000) -- --
Proceeds from sale of property and equipment.............................. 2,134,000 13,000 --
Principal repayments of notes receivable.................................. 163,000 -- --
Issuance of long-term notes receivable and interest....................... (550,000) -- --
Other..................................................................... (69,000) (259,000) (23,000)
----------- ----------- -----------
Net cash used in investing activities.................................. (5,693,000) (6,754,000) (5,308,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................................... -- -- 35,576,000
Repurchase of common stock................................................ (512,000) (6,494,000) --
Proceeds from issuance of warrants........................................ 121,000 -- --
Proceeds from exercise of options......................................... -- -- 171,000
Proceeds from exercise of warrants........................................ -- 72,000 552,000
Principal repayments of notes receivable.................................. -- 36,000 185,000
Principal repayments of subordinated debt................................. -- -- (14,400,000)
Principal repayments under capital lease obligations...................... -- -- (1,314,000)
Dividends paid............................................................ (1,210,000) -- --
----------- ------------ -----------
Net cash (used in) provided by financing activities.................... (1,601,000) (6,386,000) 20,770,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 4,467,000 (10,050,000) 22,785,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............................... 13,458,000 23,508,000 723,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR..................................... $17,925,000 $13,458,000 $23,508,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest................................................................. $ 30,000 $ 42,000 $1,659,000
Income taxes............................................................. $3,991,000 $2,176,000 $ 388,000
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company entered into a capital lease obligation of $18,000 for
equipment for the year ended 1997.
In 1997, the Company recorded an increase to additional paid-in-capital of
$250,000 related to tax benefits associated with the exercise of non-qualified
stock options (see Note 7).
In 1999, the Company recorded $122,000 in interest income related to notes
receivable from common stockholders.
See notes to consolidated financial statements.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
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 wholly owned subsidiary, Big Dog USA, Inc. (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 and a
catalog.
On September 25, 1997, the Company's $56,000,000 initial public
offering of 4,000,000 shares of common stock at $14.00 per share was declared
effective. Of the 4,000,000 shares, the Company sold 2,800,000 shares and
certain stockholders sold 1,200,000 shares. The Company's net proceeds, after
underwriting discounts and expenses associated with the offering were
approximately $35,600,000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 $13,406,000 of cash on deposit with a high credit
quality financial institution which is in excess of the Federal Deposit
Insurance Corporation limit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of receivables and accounts payable
approximate their carrying values because of the short-term maturity of these
instruments.
CASH & 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 and depreciated using the
straight-line method over their estimated useful lives, ranging from two to ten
years. Amortization of leasehold improvements is computed using the
straight-line method based upon the life of the improvement or the term of the
lease, whichever is shorter.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INTANGIBLE ASSETS
Intangible assets are stated at cost and amortized using the
straight-line method over five years. Accumulated amortization was $693,000, and
$665,000 at December 31, 1999 and 1998, respectively.
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. If the estimated future
cash flows (undiscounted and without interest charges) from the use of an asset
are less than the carrying value, a write-down would be recorded to reduce the
related asset to its estimated fair value.
SELLING, MARKETING AND DISTRIBUTION EXPENSES
Included in this classification are approximately $304,000, $474,000,
and $547,000 in 1999, 1998, and 1997, respectively, of store preopening
expenses, which are expensed as incurred.
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. The income tax provision or benefit is the tax payable or refundable
for the period plus or minus the change during the period in deferred income tax
assets (see Note 5).
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.
The following reconciles the numerator and denominator of the basic and
diluted per-share computations for net income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Net income $ 5,196,000 $ 4,032,000 $ 2,665,000
=========== =========== ===========
Basic Weighted Average Shares:
Weighted average number of shares outstanding................ 12,032,000 12,472,000 10,965,000
Effect of Dilutive Securities:
Options and warrants......................................... 150,000 37,000 222,000
----------- ----------- ----------
Diluted Weighted Average Shares:
Weighted average number of shares outstanding and
common share equivalents..................................... 12,182,000 12,509,000 11,187,000
=========== =========== ===========
Antidilutive options and warrants............................. 929,000 1,615,000 --
</TABLE>
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Antidilutive options consist of the weighted average of stock options for
the respective years that had an exercise price greater than the average market
price during the year. Such options are therefore excluded from the computation
of diluted shares.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company will adopt
SFAS No. 133 in the year ending December 31, 2000. The Company anticipates that
the adoption of SFAS No. 133 will not have a material impact on the Company's
financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Leasehold improvements............................. $ 9,334,000 $ 8,400,000
Equipment and fixtures............................. 15,428,000 13,413,000
----------- -----------
24,762,000 21,813,000
Less accumulated depreciation and amortization..... 12,725,000 8,830,000
----------- -----------
Property and equipment, net........................ $12,037,000 $12,983,000
=========== ===========
</TABLE>
Depreciation and amortization expense on property and equipment totaled
$4,060,000, $3,621,000 and $2,479,000 in 1999, 1998, and 1997, respectively.
In May 1999, the Company purchased the building which houses its
downtown Santa Barbara retail store for $1.6 million. In August 1999, the
Company sold this building for $2.1 million and simultaneously entered into a
10-year lease. The $0.5 million gain related to the sale of this building is
being deferred over the life of the lease.
3. 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. Under these agreements, the Company and PETsMART.com will
participate in cooperative marketing efforts, including direct mailings and
sponsorship on each other's websites. Included as part of the strategic
relationship, the Company bought a warrant to purchase common stock of
PETsMART.com at varying exercise prices. The warrant is subject to partial
revocation in the event certain performance criteria are not met. Additionally,
the Company sold PETsMART.com a five-year warrant to purchase 121,000 shares of
common stock of the Company at an exercise price of $10 per share for $121,000.
The Company also provided consulting and other services to PETsMART.com for
which it received $750,000 of income that is included in Net Sales. In
conjunction with this investment, which is accounted for on the cost method, 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 bear interest at 9% per annum, payable
annually with principal due in October, 2003.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. SHORT-TERM BORROWINGS
The Company has a borrowing arrangement with a bank whereby the Company
may, from time to time and upon approval from the bank, borrow up to $8,000,000.
Such borrowings may be used for cash advances and letters of credit. The
borrowing arrangement provides for interest at the bank's prime lending rate
less 3/8% or 250 basis points over the LIBOR rate, and is collateralized by
substantially all assets of the Company.
The Company has outstanding commitments under letters of credit
totaling $1,950,000, at December 31, 1999. The letters of credit expire through
April 6, 2000.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- ------------
Current:
Federal...................................... $ 2,672,000 $ 2,978,000 $ 1,438,000
State........................................ 467,000 424,000 195,000
----------- ------------ -----------
Total............................................ 3,139,000 3,402,000 1,633,000
----------- ------------ -----------
Deferred:
Federal...................................... 4,000 (664,000) 5,000
State........................................ (7,000) (64,000) (5,000)
----------- ----------- -----------
Total............................................ (3,000) (728,000) --
----------- ----------- -----------
Total income tax provision....................... $ 3,136,000 $ 2,674,000 $ 1,633,000
=========== ============ ===========
</TABLE>
The Company's effective income tax rate differs from the federal
statutory rate due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1999 1998 1997
------ ------- ------
Federal statutory income tax rate................ 34.0% 34.0% 34.0%
State taxes, net of federal benefit.............. 3.6 3.4 3.2
Other, net....................................... 0.0 2.5 0.8
----- ---- ----
Total............................................ 37.6% 39.9% 38.0%
==== ==== ====
</TABLE>
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. INCOME TAXES (continued)
Significant components of the Company's net deferred income tax assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1999 1998
----------- -----------
Deferred income tax assets:
Allowance for doubtful receivables and sales returns....... $ 36,000 $ 27,000
Accrued vacation........................................... 49,000 40,000
Inventory uniform capitalization........................... 423,000 714,000
Intangible assets.......................................... 164,000 168,000
State income taxes......................................... 129,000 114,000
Deferred rent.............................................. 347,000 298,000
Deferred gain on sale of building.......................... 202,000 --
Reserve liabilities........................................ 25,000 82,000
Other...................................................... -- 10,000
----------- ----------
Total deferred income tax assets.............................. 1,375,000 1,453,000
----------- ----------
Deferred income tax liabilities:
Prepaid expenses........................................... (192,000) (108,000)
Depreciation............................................... (308,000) (473,000)
----------- ----------
Total deferred income tax liabilities.......................... (500,000) (581,000)
----------- --- --------
Deferred income tax asset..................................... $ 875,000 $ 872,000
=========== ===========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases retail stores, office buildings and warehouse space
under lease agreements that expire through 2009. Future minimum lease payments
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
2000............................................................ $ 15,183,000
2001............................................................ 12,286,000
2002............................................................ 9,413,000
2003............................................................ 7,598,000
2004............................................................ 5,685,000
Thereafter...................................................... 10,497,000
------------
Total........................................................... $ 60,662,000
============
</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 and common area charges. 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.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. COMMITMENTS AND CONTINGENCIES (continued)
Rent expense for the years ended December 31, 1999, 1998, and 1997,
totaled $15,636,000, $13,962,000, and $11,333,000, respectively, and includes
contingent rentals of $329,000, $336,000, and $149,000 for the years ended
December 31, 1999, 1998, and 1997, respectively.
LITIGATION
The Company is not involved in any legal proceedings other than certain
actions arising in the ordinary course of its business. While the outcome of
such proceedings and threatened proceedings cannot be predicted with certainty,
in the opinion of management, the ultimate resolution of these matters
individually or in the aggregate will not have a material adverse effect on the
Company's business, financial condition or results of operations.
7. 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 1,183,200 shares
totaling $7,006,000 as of December 31, 1999.
As of December 31, 1999, 1998, and 1997, there were unexercised
warrants outstanding of 193,000, 72,000, and 96,000, respectively, to purchase
common stock at exercise prices ranging between $10 and $3 per share.
STOCK OPTIONS
In March 1996, the Company issued a five-year option to its chairman to
acquire 35,000 shares of the Company's common stock at an exercise price of
$2.59 per share. In August 1996, the Company issued an additional five-year
option to the chairman to acquire an additional 20,000 shares at an exercise
price of $4.00. The exercise prices were determined by the board of directors to
be equal to or greater than the fair value of the Company's common stock at the
date of grant. During 1997, these options were exercised, and the Company
recognized tax benefits of $250,000 resulting from the exercise of these
nonqualified stock options which were recorded as additional paid-in capital in
the consolidated financial statements.
In January 1997, the Company adopted the 1997 Stock Option Plan
authorizing the issuance of nonqualified stock options to directors, officers,
employees, consultants and others to purchase common stock at prices equal to
the fair value of the Company's shares at the grant dates. Such options vest
one-third each year, beginning the year after the grant date and expire ten
years from the date of grant. The 1997 Stock Option Plan was eliminated on
August 1, 1997.
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.
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.
Options granted in 1997 vested at 20% each year, beginning one year after the
grant date and expire seven to ten years from the date of grant.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. STOCKHOLDERS' EQUITY (continued)
In April 1998, the Company re-priced (by canceling and reissuing)
444,750 options granted under the Plan. The re-priced options have a ten-year
life and either (i) have an exercise price of $6.50 per share (fair market value
at grant date) and vest in equal installments on each anniversary of the April 7
grant date over the next five years or (ii) as to officers, have exercise prices
ranging from $6.50 to $10.00 and vest at varying rates of 10% to 20% per year on
each anniversary of the April 7 grant date over the next seven years.
The following summarizes stock option activity for the periods presented:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
------------ --------------
<S> <C> <C>
Balance at January 1, 1997........................... 55,000 3.10
Options granted .................................... 482,000 11.14
Options exercised................................... (55,000) (3.10)
Options cancelled................................... (13,250) (12.04)
-----------
Balance at December 31, 1997......................... 468,750 11.11
Options granted..................................... 1,970,150 6.92
Options cancelled................................... (1,197,450) (9.19)
----------
Balance at December 31, 1998......................... 1,241,450 6.32
Options granted..................................... 70,000 5.82
Options cancelled................................... (116,000) (6.59)
-----------
Balance at December 31, 1999......................... 1,195,450 6.27
===========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
---------------------------------------------------- ----------------------------
WEIGHTED-
AVERAGE WEIGHTED-
RANGE OF EXERCISE OPTIONS REMAINING AVERAGE OPTIONS WEIGHTED-AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ---------------- ---------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$3.50 282,500 9.0 years $ 3.50 62,500 $ 3.50
5.00 - 6.50 651,950 8.3 years 6.35 139,623 6.14
8.00 125,000 8.3 years 8.00 -- --
10.00 - 14.00 136,000 8.1 years 10.05 2,400 10.88
--------- -------
3.50 - 14.00 1,195,450 8.4 years 6.27 204,523 5.39
========= =======
</TABLE>
The Company accounts for its stock-based awards using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. STOCKHOLDERS' EQUITY (continued)
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income and net income per share had the Company
adopted the fair value method as of the beginning of 1995. Under SFAS No. 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, 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
1999, 1998, and 1997, respectively: expected volatility of 223%, 259%, and 7%;
risk-free interest rates of 5.6%, 5.4%, and 6.4%; expected lives of 10.0, 9.9,
and 7.7 years; and $0.10 per share cash dividend in 1999, no dividend in 1998 or
1997. Forfeitures are recognized as they occur. If the computed fair values of
the 1999, 1998, and 1997 awards had been amortized to expense over the vesting
period of the awards, pro forma net income would have been reduced to the pro
forma amounts indicated below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Net income:
As reported.................................................... $ 5,196,000 $ 4,032,000 $ 2,665,000
Pro forma...................................................... 4,700,000 3,586,000 2,567,000
Net income per share:
As reported:
Basic and diluted.............................................. $ 0.43 $ 0.32 $ 0.24
Pro forma:
Basic and diluted............................................... $ 0.39 $ 0.29 $ 0.23
Weighted average fair value of options granted during the year... $ 3.77 $ 5.04 $ 4.37
</TABLE>
8. 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 $2,182,000 and
$8,636,000, for the years ended December 31, 1998 and 1997, respectively. There
were no purchases made 1999. Included in accounts payable is $5,000 due to these
vendors at December 31, 1998.
The Company also received consulting services from related parties in
1997. Such expenses incurred for the year ended December 31, 1997 were $90,000,
and are included in general and administrative expenses in the consolidated
statements of operations.
The Company engaged a related party to perform retail construction
services. Construction services provided to the Company totaled $3,000,
$871,000, and $371,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
<PAGE>
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- -------
(in thousands, except per share)
Year ended December 31, 1999:
<S> <C> <C> <C> <C>
Net sales........................................... $ 16,743 $ 24,093 $ 29,596 $ 39,141
Gross profit........................................ 8,887 14,560 18,154 21,481
Selling, marketing and distribution expenses........ 11,323 12,107 12,240 14,455
General and administrative expenses................. 1,215 1,249 1,242 1,314
Total operating expenses............................ 12,538 13,356 13,482 15,769
(Loss) income from operations....................... (3,651) 1,204 4,672 5,712
Net (loss) income................................... (2,170) 734 2,887 3,745
Net (loss) income per share
Basic and diluted.................................. $ (0.18) $ 0.06 $ 0.24 $ 0.31
Weighted average shares outstanding
Basic.............................................. 12,100 12,029 12,002 12,000
Diluted............................................ 12,100 12,160 12,150 12,171
Year ended December 31, 1998:
Net sales........................................... $ 14,212 $ 22,389 $ 28,354 $ 35,722
Gross profit........................................ 7,650 13,573 17,088 21,130
Selling, marketing and distribution expenses........ 10,450 11,766 11,895 13,698
General and administrative expenses................. 1,150 1,332 1,330 1,464
Total operating expenses............................ 11,600 13,098 13,225 15,162
(Loss) income from operations....................... (3,950) 475 3,863 5,968
Net (loss) income................................... (2,279) 327 2,400 3,584
Net (loss) income per share
Basic and diluted.................................. $ (0.17) $ 0.03 $ 0.20 $ 0.30
Weighted average shares outstanding
Basic.............................................. 13,150 12,476 12,183 12,100
Diluted............................................ 13,150 12,532 12,204 12,110
</TABLE>
10. SUBSEQUENT EVENT
In March 2000, the Company declared a cash dividend of $0.10 per share
payable on March 27, 2000 to stockholders of record at the close of business on
March 11, 2000.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation(1)
3.1A Cerificate of Correction(1)
3.2 Amended and Reinstated Bylaws(2)
4.1 Reference Is herby made to Exhibits 3.1, 3.1A and 3.2
4.2 Specimen Stock Certificate (1)
10.1 Grid Promissory Note of Company to Isreal Discount
Bank dated 2/19/98(3)
10.3 Form of Warrants issued November 4, 1996(1)
10.10 Amended and Restated 1997 Performance Award Plan(3)
10.10A Form of Employee Nonqualified 1997 Performance Award
Plan(1)
10.10B Terms and Conditions for Non-Qualified Options
Granted under the Amended and Restated 1997
Performance Award Plan(3)
10.10C From of Eligible Director Non-Qualified Stock Option
Agreement(3)
10.11 Lease between Big Dog USA, Inc. and The Prudential
Insurance Company of America dated November 4,
1997(2)
10.12 Lease Agreement between Big Dog Holdings, Inc. and
S.V.B. Properties dated as of June 1, 1994, as
amended by Lease Agreement dated as of
December 1, 1994, Second Lease Amendment dated as
of March 1, 1996, Third Lease Amendment between
Big Dog Holdings and Greeland Realty LLC dated as
of July 22, 1996, (1) and Fourth Lease Amendment
dated December 18, 1998(3)
10.14 From of Indemnification Agreement(1)
21.1 List of Subsidiaries of Big Dog Holdings, Inc.(1)
24.1 Power of Attorney (included in signature page)
27.1 Financial data schedule
</TABLE>
(1) Incorporated by reference from the Company's S-1 Registration Statement (No.
333-33027), as amended, which became effective September 25, 1997.
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
(3) Incorporated by reference from the Registrant's Annual Report on From 10-K
for the year ended December 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17925
<SECURITIES> 0
<RECEIVABLES> 1059
<ALLOWANCES> (91)
<INVENTORY> 19950
<CURRENT-ASSETS> 40825
<PP&E> 24762
<DEPRECIATION> (12725)
<TOTAL-ASSETS> 56413
<CURRENT-LIABILITIES> 8363
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 46528
<TOTAL-LIABILITY-AND-EQUITY> 56413
<SALES> 109573
<TOTAL-REVENUES> 109573
<CGS> 46491
<TOTAL-COSTS> 55145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (395)
<INCOME-PRETAX> 8332
<INCOME-TAX> 3136
<INCOME-CONTINUING> 5196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5196
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.43
</TABLE>
