<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---- ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 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 No. 015767
THE SPORTSMAN'S GUIDE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1293081
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
411 FARWELL AVE., SO. ST. PAUL, MINNESOTA 55075
(Address of principal executive offices)
(651) 451-3030
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
As of May 17, 2000, there were 4,748,810 shares of the registrant's Common Stock
outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SPORTSMAN'S GUIDE, INC.
BALANCE SHEETS
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Accounts receivable - net $ 2,879 $ 4,944
Inventory 33,746 37,403
Promotional material 3,268 4,435
Prepaid expenses 1,512 759
------------- -------------
Total current assets 41,405 47,541
PROPERTY AND EQUIPMENT - NET 5,645 5,764
OTHER ASSETS 191 191
------------- -------------
Total assets $ 47,241 $ 53,496
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Checks written in excess of bank balances $ 1,859 $ 2,425
Notes payable - bank 17,041 12,598
Current maturities of long-term debt 30 30
Accounts payable
Trade 8,509 16,002
Related parties 48 66
Accrued expenses 1,246 1,809
Customer deposits and other liabilities 2,203 3,342
------------- -------------
Total current liabilities 30,936 36,272
LONG-TERM LIABILITIES
Long-term debt 40 40
Deferred income taxes 170 170
------------- -------------
Total liabilities 31,146 36,482
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Common Stock-$.01 par value; 36,800,000 shares
authorized; 4,748,810 and 4,747,810 shares issued and
outstanding at March 31, 2000 and December 31, 1999 47 47
Additional paid-in capital 11,565 11,562
Retained earnings 4,483 5,405
------------- -------------
Total shareholders' equity 16,095 17,014
------------- -------------
Total liabilities and shareholders' equity $ 47,241 $ 53,496
============== =============
</TABLE>
See accompanying condensed notes to financial statements.
2
<PAGE> 3
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Quarters Ended
March 31, 2000 and 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarters Ended March 31,
------------------------
2000 1999
---- ----
<S> <C> <C>
Sales $ 30,733 $ 38,384
Cost of sales 19,142 23,070
---------------- ----------------
Gross profit 11,591 15,314
Selling, general and administrative expenses 12,622 14,549
---------------- ----------------
Earnings (loss) from operations (1,031) 765
Interest expense (382) (116)
Miscellaneous income (expense), net 5 4
---------------- ----------------
Earnings (loss) before income taxes (1,408) 653
Income tax expense (benefit) (486) 225
---------------- ----------------
Net earnings (loss) $ (922) $ 428
================ ================
Net earnings (loss) per share:
Basic $ (.19) $ .09
================ ================
Diluted $ (.19) $ .09
================ ================
Weighted average common and common equivalent shares outstanding:
Basic 4,748 4,748
================ ================
Diluted 4,748 4,849
================ ================
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE> 4
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Quarters Ended
March 31, 2000 and 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
Quarters Ended March 31,
------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (922) $ 428
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 526 412
Changes in assets and liabilities:
Accounts receivable 2,065 31
Inventory 3,657 (2,802)
Promotional material 1,167 (592)
Prepaid expenses (753) (159)
Checks written in excess of bank balances (566) 2,787
Accounts payable (7,511) (2,440)
Accrued expenses (563) (162)
Customer deposits and other liabilities (1,139) (210)
-------------- --------------
Cash flows used in operating activities (4,039) (2,707)
Cash flows from investing activities:
Purchases of property and equipment (409) (523)
Other 2 --
-------------- --------------
Cash flows used in investing activities (407) (523)
Cash flows from financing activities:
Net proceeds from revolving credit line 4,443 920
Proceeds from exercise of stock options and warrants 3 7
-------------- --------------
Cash flows provided by financing activities 4,446 927
-------------- --------------
Decrease in cash and cash equivalents -- (2,303)
Cash and cash equivalents at beginning of the quarter -- 2,303
-------------- --------------
Cash and cash equivalents at end of the quarter $ -- $ --
============== ==============
Supplemental disclosure of cash flow information
Cash paid during the quarters for:
Interest $ 261 $ 126
Income taxes $ 65 $ 1
</TABLE>
See accompanying condensed notes to financial statements.
4
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THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The accompanying financial statements are unaudited and reflect all
adjustments which are normal and recurring in nature, and which, in the
opinion of management, are necessary for a fair presentation thereof.
Reclassifications have been made to prior year financial information
wherever necessary to conform to the current year presentation. Results
of operations for the interim periods are not necessarily indicative of
full-year results.
The Company's fiscal quarter ends on the Sunday nearest March 31 for
2000 and 1999, but for clarity of presentation, all periods are
described as if the quarter end is March 31. Fiscal quarters 2000 and
1999 consisted of 13 weeks.
In preparing the Company's financial statements, management is required
to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual
results could differ from the estimates used by management.
Note 2: Net Earnings (Loss) Per Share
The Company's basic net earnings (loss) per share amounts have been
computed by dividing net earnings (loss) by the weighted average number
of outstanding common shares. The Company's diluted net earnings per
share amounts have been computed by dividing net earnings by the
weighted average number of outstanding common shares and common share
equivalents relating to stock options and warrants, when dilutive.
For the quarter ended March 31, 2000, no common share equivalents were
included in the computation of diluted net loss per share. However, if
the Company would have reported net income in the quarter ended March
31, 2000, the common share equivalents that would have been included in
the computation of diluted net earnings per share were 27,480.
For the quarter ended March 31, 1999, 101,264 shares of common stock
equivalents were included in the computation of diluted net earnings
per share.
Options and warrants to purchase 616,189 and 392,625 shares of common
stock with a weighted average exercise price of $6.29 and $7.11 were
outstanding during the quarter ended March 31, 2000 and 1999, but were
not included in the computation of diluted net earnings per share
because to do so would have been anti-dilutive.
Note 3: Revolving Credit Facility
The Company is a party to a Credit and Security Agreement with Norwest
Bank Minnesota, National Association providing a revolving line of
credit up to $25 million, subject to an adequate borrowing base,
expiring in December 2002. Effective May 12, 2000, the Company amended
the Credit and Security Agreement to provide, among other things,
amendments to (i) the quarterly measurement of year-to-date earnings
(loss) covenant and (ii) the interest rate applicable to the
outstanding borrowings of the Company in the event that certain net
income levels are not obtained or proceeds from the Company's
previously announced private equity placement are not received. In
addition, as part of the amendment, the bank agreed to waive the
Company's default of the quarterly measurement of year-to-date earnings
(loss) covenant.
Note 4: Subsequent Event
On March 22, 2000, the Company entered into a binding letter of intent
with E Com Ventures, Inc. pursuant to which E Com Ventures, Inc. agreed
to purchase from the Company 550,000 shares of common stock of the
Company for $6.00 per share in a private placement. The Company also
agreed to issue E Com Ventures, Inc. a warrant to purchase 110,000
shares of common stock at an exercise price of $6.50 per share,
exercisable for a period of ten years from the date of issuance. The
transaction is subject to due diligence and to date has not been
completed.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended March 31, 2000 compared to quarter ended March 31, 1999
SALES. Sales for the quarter ended March 31, 2000 of $30.7 million were $7.7
million or approximately 20% lower than sales of $38.4 million during the same
period last year. The decrease in sales, quarter over quarter, was primarily due
to a planned decrease in catalog circulation combined with lower than
anticipated customer response rates, offset slightly by an increase in Internet
sales versus last year. The Company's plan for 2000 is to improve profitability
by reducing the number of catalog mailings through the elimination of
unprofitable specialty catalog editions and monthly main catalog mailings to
unprofitable segments of the house customer file. This strategy will yield a
significant reduction in advertising costs while producing lower sales compared
to the prior year. The Company expects sales to decrease at a lower rate than
advertising costs, producing a higher level of profitability with an improved
advertising to sales ratio.
Catalog circulation for the first quarter of 2000 was down approximately 20% per
plan compared to the same period last year. At the same time, overall customer
response rates were expected to improve over the prior year with the elimination
of unprofitable catalog editions and customer segments. Actual customer response
rates in the first quarter of 2000 were much lower than anticipated causing a
significant shortfall to the projected sales level. Management believes that
customer response rates during the quarter were negatively impacted primarily by
late and undelivered catalogs by the United States Postal Service and
unseasonably warm weather. The Company mailed ten catalog editions, including
seven specialty editions, during the quarter ended March 31, 2000, compared to
twelve editions, including nine specialty editions, during the same period last
year.
Internet sales for the quarter ended March 31, 2000 were approximately 13% of
total net sales compared to approximately 4% of total net sales during the same
period last year. The Company defines Internet sales as those that are derived
from our web site and catalog orders that are processed online on our web site.
Gross returns and allowances for the quarter ended March 31, 2000 were $3.6
million or 10.4% of gross sales compared to $4.3 million or 10.2% of gross sales
during the same period last year.
GROSS PROFIT. Gross profit for the quarter ended March 31, 2000 was $11.6
million or 37.7% of sales compared to $15.3 million or 39.9% of sales during the
same period last year. The decrease in gross profit as a percentage of sales was
primarily due to higher distribution costs and lower shipping and handling
margins. Distribution expense as a percentage of sales was up due to higher
wages and higher merchandise handling costs associated with lower than
anticipated sales volume. Shipping and handling margins were down primarily due
to rate increases by parcel post carriers effective in each of the first
quarters of 1999 and 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the quarter ended March 31, 2000 were $12.6 million
or 41.1% of sales compared to $14.5 million or 37.9% of sales for the same
period last year. The decrease in dollars, compared to the same period last
year, was primarily due to a planned reduction in catalog circulation. Total
circulation during the first quarter of 2000 was 14.8 million catalogs compared
to 18.4 million catalogs during the first quarter of 1999. Advertising expense
for the quarter ended March 31, 2000 was $7.4 million or 24.1% of sales compared
to $8.7 million or 22.6% of sales for the same period last year. The increase in
advertising expense as a percentage of sales, compared to the same period last
year, was primarily due to higher costs per catalog associated with the larger
page size of the monthly main and footwear catalogs.
EARNINGS (LOSS) FROM OPERATIONS. Loss from operations for the quarter ended
March 31, 2000 was ($1.0) million compared to earnings from operations of
$765,000 for the quarter ended March 31, 1999.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 2000 was
$382,000 compared to $116,000 for the same period last year. The increase in
interest expense was primarily due to higher levels of borrowing used for
payments of accounts payable.
NET EARNINGS (LOSS). Net loss for the quarter ended March 31, 2000 was
($922,000) compared to net earnings of $428,000 or 1.1% of sales during the same
period last year.
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SEASONALITY AND QUARTERLY RESULTS
The majority of the Company's sales historically occur during the second half of
the year. The seasonal nature of the Company's business is due to its focus on
outdoor merchandise and related accessories for the fall, as well as winter
apparel and gifts for the holiday season. The Company expects this seasonality
will continue in the future. In anticipation of increased sales activity during
the third and fourth quarters, the Company incurs significant additional
expenses for hiring employees and building inventory levels.
The following table sets forth certain unaudited financial information for each
of the quarters shown.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Sales $ 30,733
Gross profit 11,591
Loss from operations (1,031)
Net loss (922)
1999
Sales $ 38,384 $ 32,683 $34,659 $ 56,789
Gross profit 15,314 13,453 13,169 22,948
Earnings (loss) from operations 765 391 (1,378) 1,348
Net earnings (loss) 428 133 (1,146) 597
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its operating cash requirements through funds generated from
operations and borrowings under its revolving line of credit.
WORKING CAPITAL. The Company had working capital of $10.5 million as of March
31, 2000 compared to $11.3 million as of December 31, 1999. The decrease of
$800,000 was primarily due to year-to-date losses. The Company's working capital
requirements have increased over the last three years primarily as a result of
higher inventory levels and lower inventory turnover which are consistent with
the Company's strategic plan to increase product categories and product margins
through purchasing more manufacturers' close-outs and direct imports. The
Company purchases large quantities of manufacturers' close-outs and direct
imports, particularly in the footwear and apparel merchandise categories. The
seasonal nature of the merchandise may require that it be held for several
months before being offered in a catalog. This can result in increased inventory
levels and lower inventory turnover, thereby increasing the Company's working
capital requirements and related carrying costs.
The Company offers its customers an installment credit plan with no finance
fees, known as the "G. O. Painless 4-Pay Plan". Each of the four consecutive
monthly installments is billed directly to customers' credit cards. The Company
had installment receivables of $2.0 million at March 31, 2000 compared to $4.1
million at December 31, 1999. The installment plan will continue to require the
allocation of working capital which the Company expects to fund from operations
and availability under its revolving credit facility.
In December 1999, the Company entered into a Credit and Security Agreement with
Norwest Bank Minnesota, National Association providing a revolving line of
credit up to $25 million, subject to an adequate borrowing base, expiring in
December 2002. The revolving line of credit is for working capital and letters
of credit. Letters of credit may not exceed $10.0 million at any one time.
Funding under the credit facility consists of a collateral base of 55% of
inventory plus 80% of trade accounts receivable. Borrowings bear interest at the
bank's prime rate less 0.25%. The revolving credit line is collateralized by
substantially all of the assets of the Company.
All borrowings are subject to various covenants. The most restrictive covenants
include a limit on monthly pretax loss, quarterly measurement of year-to-date
earnings (loss), maximum debt to net worth ratio, maximum days inventory levels
(as defined) and maximum annual spending levels for capital assets. The
agreement also prohibits the payment of dividends to shareholders. Effective May
12, 2000, the Company amended the Credit and Security Agreement to provide,
among other things, amendments to (i) the quarterly measurement of year-to-date
earnings (loss) covenant and (ii) the interest rate
7
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applicable to the outstanding borrowings of the Company in the event that
certain net income levels are not obtained or proceeds from the Company's
previously announced private equity placement are not received. As of March 31,
2000, the Company had borrowed $17.0 million against the revolving credit line
compared to $12.6 million at December 31, 1999. Outstanding letters of credit
were $1.0 million at March 31, 2000 compared to $1.5 million at December 31,
1999.
OPERATING ACTIVITIES. Cash flows used in operating activities for the quarter
ended March 31, 2000 were $4.0 million compared to $2.7 million for the same
period last year. The increase in cash flows used in operating activities was
primarily the result of payments of accounts payable and the year-to-date
losses.
INVESTING ACTIVITIES. Cash flows used in investing activities during the quarter
ended March 31, 2000 were $407,000 compared to $523,000 during the same period
last year. The Company plans to expend approximately $1.8 million for capital
additions during 2000.
FINANCING ACTIVITIES. Cash flows provided by financing activities during the
quarter ended March 31, 2000 were $4.4 million compared to $927,000 during the
same period last year. The change in cash flows provided by financing activities
during the first quarter of 2000 versus last year was due to increasing the net
proceeds from the revolving credit line to fund the reduction in accounts
payable.
The Company believes that cash flow from operations and borrowing capacity under
its revolving credit facility will be sufficient to fund operations and future
growth for the next 12 months.
YEAR 2000
We did not experience any Year 2000 related disruptions to our business. We will
continue to monitor all of our computer systems to ensure the ongoing integrity
of data processing. To our knowledge, none of our critical suppliers have
experienced any significant Year 2000 related problems. We are continuing to
monitor the progress of those suppliers to ensure Year 2000 compliance.
FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements within the meaning of the
federal securities laws. Actual results could differ materially from those
projected in the forward-looking statements due to a number of factors,
including general economic conditions, a changing market environment for the
Company's products and the market acceptance of the Company's catalogs and
Internet offerings as well as the factors set forth in Exhibit 99 "Risk Factors"
to the Company's Annual Report on Form 10-K for the year ended December 31 1999,
filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company's annual meeting of shareholders will be held on July 19, 2000 at
2:00 p.m. local time at the Company's executive offices. The Company plans to
mail its proxy materials for the meeting on or about June 9, 2000. Proposals by
shareholders intended to be presented at the annual meeting must be received at
the Company's executive offices a reasonable time before the mailing date to be
considered for inclusion in the proxy statement for the meeting pursuant to Rule
14a-8 or to be considered timely under Rule 14a-4(c)(1).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended March 31, 2000, the Company filed a report on
Form 8-K dated January 11, 2000, reporting under Item 5 "Other Events" that the
Company had prepared a private placement memorandum in connection with a
proposed private financing. Certain sections of the memorandum were filed as an
exhibit to the report.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SPORTSMAN'S GUIDE, INC.
Date: May 17, 2000 /s/ Charles B. Lingen
---------------------
Charles B. Lingen
Senior Vice President Finance/CFO
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF EARNINGS FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM
10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-02-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,012
<ALLOWANCES> 133
<INVENTORY> 33,746
<CURRENT-ASSETS> 41,405
<PP&E> 12,880
<DEPRECIATION> 7,235
<TOTAL-ASSETS> 47,241
<CURRENT-LIABILITIES> 30,936
<BONDS> 40
0
0
<COMMON> 47
<OTHER-SE> 16,048
<TOTAL-LIABILITY-AND-EQUITY> 47,241
<SALES> 30,733
<TOTAL-REVENUES> 30,733
<CGS> 19,142
<TOTAL-COSTS> 19,142
<OTHER-EXPENSES> (5)
<LOSS-PROVISION> 54
<INTEREST-EXPENSE> 382
<INCOME-PRETAX> (1,408)
<INCOME-TAX> (486)
<INCOME-CONTINUING> (922)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (922)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
