Back to GetFilings.com
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, 1997
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)
-------------------------
CALIFORNIA 52-1868665
---------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
121 GRAY AVENUE, SANTA BARBARA, CALIFORNIA 93101
------------------------------------------ -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(805) 963-8727
--------------
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.01
par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of
the registrant on March 23, 1998 was approximately $34,377,666 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 23, 1998 the registrant had 13,159,550 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive
Proxy Statement for the 1998 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.
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-Registered Trademark- 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-Registered
Trademark- 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 150 as of December 31, 1997.
The Company's collection is centered around its signature BIG
DOGS-Registered Trademark- name, logo and "Big Dog" characters and is designed
to appeal to a broad range of customers when they are in the "Big Dog state of
mind." The BIG DOGS-Registered Trademark- 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"-Registered Trademark-, "Unless You're the
Lead Dog, the Scenery Never Changes," and "Lead, Follow or Get Out of the Way."
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-Registered Trademark- 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-Registered Trademark-
line of activewear and casual sportswear for men and women, the Company has
successfully introduced and expanded its LITTLE BIG DOGS-TM- line of infants'
and children's apparel and its BIG BIG DOGS-TM- line of Big and Tall apparel.
The Company has also successfully 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-Registered Trademark- 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 and better wholesale accounts.
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 Dog 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 large-size customers.
MAINTAIN CONTROLLED DISTRIBUTION. Big Dogs' sells its products
primarily through its own stores and, to a lesser extent, through its catalog.
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 and catalog. 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
IAMS).
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 29 net new stores in 1997. 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. Although Big Dogs' traditional emphasis
has been on outlet malls, the Company has more recently increased its focus on
opening full-price, stand-alone stores in tourist and leisure locations.
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 more recently introduced collections for infants and children and the
Big and Tall 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-Registered Trademark-
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.
Prices for most of the Company's products range from between $5 and
$30. 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, 1997:
RETAIL STORE
NET SALES
% OF TOTAL
------------
Adult Apparel and Accessories ...................................59.0%
Infants' and Children's Apparel and Accessories .................19.7
Big and Tall Apparel ............................................11.8
Non-Apparel Products .............................................9.5
------
Total .....................................100.0%
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-Registered Trademark- 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. Although
the Company introduces new apparel and other products throughout the year,
certain classic, popular items and graphics have been in the Big Dogs line with
very little change for over ten years.
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-Registered Trademark- 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
adult line in order to encourage family purchases and leverage overall product
development costs. The Company sells its LITTLE BIG DOGS-Registered
Trademark-line primarily through its retail stores and catalog, and wholesales
it to certain specialty and better department stores.
BIG AND TALL APPAREL. The Company believes that the BIG DOGS-Registered
Trademark-image and the positive emphasis the brand gives to being a "Big Dog"
have a unique appeal to consumers who wear large sizes. In the spring of 1996,
the Company significantly expanded its BIG BIG DOGS-Registered
Trademark-category targeting Big and Tall customers. The Company's BIG BIG
DOGS-TM-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-Registered Trademark-name
and/or dog logo. The Company sells its BIG BIG DOGS-TM-line primarily through
its retail stores and catalog 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-Registered Trademark- brand image. The BIG DOGS 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 and catalog. The Company's catalog serves not
only as a means of product distribution, but also as the key marketing piece 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
IAMS). 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.
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 1997, the Company's retail stores contributed approximately 91% of
total net sales. As of December 31, 1997, the Company operated 150 stores in 41
states and one store in England. 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.
The table below sets forth the number of stores located in each state or country
as of the end of 1997:
State No. of Stores State No. of Stores
----- ------------- ----- -------------
Alabama 1 Minnesota 2
Alaska 1 Mississippi 2
Arizona 6 Missouri 3
California 30 Nevada 2
Colorado 3 New Hampshire 1
Connecticut 2 New Jersey 2
Delaware 2 New Mexico 1
Florida 9 New York 8
Georgia 4 North Carolina 5
Hawaii 2 Ohio 3
Idaho 2 Oregon 5
Illinois 3 Pennsylvania 6
Indiana 4 South Carolina 3
Iowa 1 Tennessee 5
Kansas 3 Texas 5
Louisiana 1 Utah 2
Maine 2 Vermont 1
Maryland 2 Virginia 3
Massachusetts 3 Washington 4
Michigan 3 West Virginia 1
Wisconsin 1
Country No. of Stores
------- -------------
United Kingdom 1
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. More recently, the Company
has increased its focus on opening full-price, stand-alone stores in tourist and
leisure locations. 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 3,000 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 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 29
net new stores during 1997. The Company's average cost to open a store in 1997,
including leasehold improvements and furniture and fixtures, was approximately
$70,000 (net of tenant improvement allowances). The average per store initial
inventory (partially financed by trade payables) for the new 1997 stores was
approximately $69,000 and pre-opening expenses averaged approximately $15,000
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 a Senior Vice
President--Retail, three regional managers and approximately 24 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,
to a lesser extent, corporate sales, premium programs, international and
internet sales, contributed approximately 9% of the Company's total net sales in
1997.
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 sales in 1997
were approximately $4.9 million, or approximately 6% of total net sales.
WHOLESALE. During 1997, the Company sold to over 600 wholesale accounts
throughout the United States. The Company's wholesale sales in 1997 were
approximately $2.5 million, or approximately 3% of total net sales.
INTERNATIONAL. Big Dogs products are not currently sold outside of the
United States, with the exception of one store in 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 and
catalog sales.
OTHER BRAND LEVERAGING. Big Dogs intends to carefully evaluate and
pursue opportunities to leverage the power of the BIG DOGS-Registered
Trademark-brand through various activities that are consistent with the brand
image, which may include selective product licensing, co-branding (such as a
current co-branding program for ski jackets with Columbia Sportswear) and
entertainment and media activities.
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.
In 1997, as in prior years, the Company purchased substantially all of its
graphic T-shirts from a commonly controlled company, Fortune Fashions, Inc.
based near Los Angeles, California. Fortune Fashions purchases blank T-shirts
and other products and provides screen -printing and embroidery services to the
Company for these products. However, during the first quarter of 1998, the
Company moved in-house the bulk of its graphic T-shirt business, including the
management of screen-printing and blanks that had previously been provided by
Fortune Fashions, and the Company expects its future business with Fortune
Fashions to be minimal.
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 over 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-Registered Trademark-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 is currently implementing fuller utilization of its
merchandising information systems to capitalize on regional and seasonal trends
and on individual store characteristics.
During 1997, Big Dogs maintained two distribution facilities: a main
facility of approximately 67,000 square feet located in Commerce, California and
a mail order warehouse and fulfillment facility of approximately 21,000 square
feet in Ventura, California. In early 1998, the Company consolidated these
operations into a new 136,000 square-foot distribution facility in Santa Fe
Springs, California. All merchandise is delivered by vendors to this new
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-Registered Trademark-, BIG DOG
SPORTSWEAR-Registered Trademark-and dog logo and the trademarks BIG DOG-TM-,
LITTLE BIG DOGS-TM- and BIG BIG DOGS-TM-. 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 10, 1997, the Company had approximately 500 full-time and 550
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.
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
23, 1998:
NAME AGE POSITION
- ------------------ --- -----------------------------------------------
Andrew D. Feshbach 37 President, Chief Executive Officer and Director
Douglas N. Nilsen 49 Executive Vice President - Merchandising
Anthony J. Wall 42 Executive Vice President - Business Affairs,
General Counsel and Secretary
Roberta J. Morris 38 Chief Financial Officer, Treasurer and
Assistant Secretary
Andrew W. Wadhams 37 Senior Vice President - Retail
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 (See Item 1. "Business - Sourcing")
in 1991 and has served as a director since that time, and, from 1991 until June
1992, served as its Chief Financial Officer. 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
Vice President and General Counsel of Fortune Fashions and Vice President of
Fortune Financial. Mr. Wall has a J.D. from the University of Southern
California.
ROBERTA J. MORRIS joined the Company in August 1993 and has served as
Chief Financial Officer since March 1, 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.
ANDREW W. WADHAMS joined the Company in August 1996 as Senior Vice
President--Retail. 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.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Santa Barbara,
California in two leased buildings comprising approximately 28,000 square feet
under leases that expire in July 1999. The Company has two five-year options to
extend the lease on one of these buildings. The Company's distribution facility
is located in Santa Fe Springs, California in a leased 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 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 Company effected its initial public offering in
September 1997 at a price of $14.00 per share. The following table sets forth,
for the periods indicated, the high and low "sales" price of the shares of
Common Stock of the Company, as reported on the NASDAQ National Market.
1997 HIGH LOW
- ---- ---- ---
Third Quarter (commencing September 24, 1997) $15-3/4 $14
Fourth Quarter $14-3/8 $ 5
On March 25, 1998, the last sales price of the Common Stock as reported
on the NASDAQ National Market was $6.625 per share. As of March 25, 1998 there
were approximately 121 shareholders of record of the Company's Common Stock.
The Company has not paid any cash dividends since inceptions and does
not anticipate paying any cash dividends in the foreseeable future.
1997 Sales of Unregistered Securities
In 1997, the Company sold an aggregate of 199,000 shares of common
stock upon exercise of outstanding warrants and options at purchase prices
ranging from $2.59 to $4.00 per share for total consideration of $723,000 in
cash. The sales of the securities in such transactions were exempt from
registration under the Securities Act of 1933 by virtue of Section 4(2) and/or
Regulation D promulgated thereunder.
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.
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(in thousands, except per share and operating data)
STATEMENT OF OPERATIONS DATA:
Net sales ............................................ $ 11,413 $ 28,404 $ 51,541 $ 68,683 $ 86,181
Cost of goods sold ................................... 5,946 12,857 21,571 29,720 36,328
----- ------ ------ ------ ------
Gross profit ......................................... 5,467 15,547 29,970 38,963 49,853
----- ------ ------ ------ ------
Selling, marketing and distribution expenses ......... 3,873 12,993 24,814 32,309 39,549
General and administrative expenses .................. 1,341 1,746 3,167 3,937 4,738
----- ----- ----- ----- -----
Total operating expenses ............................. 5,214 14,739 27,981 36,246 44,287
----- ------ ------ ------ ------
Operating income (loss) .............................. 253 808 1,989 2,717 5,566
Interest expense ..................................... 306 397 1,189 1,647 1,268
Income (loss) before provision (benefit) for
income taxes ......................................... (53) 411 800 1,070 4,298
Provision (benefit) for income taxes ................. 1 19 162 435 1,633
--------- --------- --------- --------- ---------
Net income (loss)..................................... $ (54) $ 392 $ 638 $ 635 $ 2,665
========= ========= ========= ========= =========
Net income (loss) per share
Basic and diluted ............................... $ (0.01) $ 0.04 $ 0.07 $ 0.06 $ 0.24
Weighted average common shares
Basic ........................................... 9,000 9,000 9,503 9,978 10,965
Diluted.......................................... 9,000 9,000 9,503 10,049 11,187
OPERATING DATA:
Number of stores: (1)
Open at beginning of period ........................ 5 16 51 91 121
Stores added (net of closures)...................... 11 35 40 30 29
-- -- -- -- --
Open at end of period .............................. 16 51 91 121 150
Comparable store sales increase (decrease)(2) ........ 31.8% (1.5)% 9.0% 3.2% 6.5%
DECEMBER 31
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
Working capital ...... $ 1,141 $ 1,506 $ 3,072 $ 8,030 $13,742 $35,468
Total assets ......... 3,623 5,756 13,647 19,011 25,773 52,584
Total indebtedness (3) 1,530 2,272 6,141 10,732 15,697 0
Stockholders' equity . 556 2,502 3,094 4,737 6,142 45,541
(1) Excludes two temporary stores open for a portion of 1995 and four
temporary stores open for a portion of 1996.
(2) Comparable store sales represent net sales of stores open at least one
full year. Stores are considered comparable beginning on the first day of the
first 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.
(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
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, use of proceeds
from the Company's initial public offering, 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 affect quarterly
results discussed below, the factors affecting the costs of building new stores,
and other risks and uncertainties, some of which are discussed in greater detail
in the Company's Prospectus dated September 25, 1997 filed with the SEC. 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. 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 150 as of December 31, 1997.
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:
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
Net sales ........................................ 100.0% 100.0% 100.0%
Cost of goods sold ............................... 42.2 43.3 41.9
---- ---- ----
Gross profit ..................................... 57.8 56.7 58.1
Selling, marketing and distribution expenses ..... 45.9 47.0 48.1
General and administrative expenses .............. 5.5 5.7 6.1
--- --- ---
Total operating expenses ......................... 51.4 52.8 54.3
---- ---- ----
Income from operations ........................... 6.5% 4.0% 3.9%
YEARS ENDED DECEMBER 31, 1997 AND 1996
NET SALES. Net sales consist of sales from the Company's stores,
catalog, and wholesale accounts, all net of returns and allowances. Net sales
increased to $86.2 million in 1997 from $68.7 million for 1996, an increase of
$17.5 million, or 25.5%. Of the $17.5 million increase, $13.4 million was
attributable to stores not yet qualifying as comparable stores and $3.8 million
came from the 6.5% comparable store sales increase for the period. Additionally,
non-retail sales increased by $0.3 million for the year. The increase in net
sales in 1997 was primarily attributable to continued improvements in store
operations and the Company's merchandise assortments and in-stock positions as a
result of better utilization of the merchandise planning and allocation systems.
In particular, continued strong growth in the Company's recently introduced
categories of children's, Big and Tall and non-apparel products increased to 41%
of total retail net sales from 34% of net sales in 1996.
GROSS PROFIT. Gross profit increased to $49.9 million in 1997 from
$39.0 million for 1996, an increase of $10.9 million, or 27.9%. As a percentage
of net sales, gross profit increased to 57.8% in 1997 from 56.7% in 1996. 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 in the fourth quarter 1997 as
compared to the same period in 1996.
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 $39.5 million in 1997 from $32.3 million in
1996, an increase of $7.2 million, or 22.3%. As a percentage of net sales, these
expenses decreased to 45.9% in 1997 from 47.0% in 1996, primarily as a result of
operational efficiencies gained from previous infrastructure investments and
spreading them over a larger revenue base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of administrative salaries, corporate occupancy costs and other
corporate expenses. General and administrative expenses increased to $4.7
million in 1997 from $3.9 million in 1996. As a percentage of net sales, these
expenses decreased to 5.5% in 1997 from 5.7% in 1996, reflecting the leverage of
spreading them over a larger revenue base.
INTEREST EXPENSE, NET. Interest expense, net of $0.2 million of
interest income in 1997, decreased to $1.3 million in 1997 from $1.6 million in
1996, a decrease of $0.3 million. The decrease is due to the payoff of
indebtedness from a portion of the proceeds from the Company's initial public
offering in September 1997.
YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased to $68.7 million in 1996 from $51.5
million in 1995, an increase of $17.1 million, or 33.3%. Of the $17.1 million
increase, $19.6 million was attributable to stores not yet qualifying as
comparable stores and $1.2 million was attributable to the 3.2% comparable store
sales increase for the period. These increases were partially offset by a
decline of $3.7 million in non-retail sales as a result of the Company's
streamlining of its catalog and wholesale operations which it initiated with the
objectives of improving their profitability and positioning them for future
growth. Comparable store sales increased in the fall and holiday periods, which
management believes was primarily a result of fundamental improvements in store
operations. These improvements include integration of newly recruited executive
management in merchandising, store operations and distribution, utilization of
the new computer system to improve merchandising decisions and product
allocation and improvements in warehouse operations. Comparable store sales also
increased as a result of the continued growth of the three relatively new
product lines (children's, Big and Tall and non-apparel products) and new
promotional techniques.
GROSS PROFIT. Gross profit increased to $39.0 million in 1996 from
$30.0 million in 1995, an increase of $9.0 million, or 30.0%. However, as a
percentage of net sales, gross profit decreased to 56.7% in 1996 from 58.1% in
1995. This decline in gross profit as a percentage of net sales is primarily
attributable to certain inefficiencies throughout the year related to the
integration of the new merchandising information system. In addition, the
Company experienced lower than expected retail gross profit margins in the
fourth quarter of 1996 due to product mix and out-of-stock issues in December
related to better than expected sell-throughs in October and November.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses increased to $32.3 million in 1996 from $24.8 million in
1995, an increase of $7.5 million, or 30.2%. As a percentage of net sales, these
expenses decreased to 47.0% in 1996 from 48.1% in 1995. This decrease in
operating expenses as a percentage of net sales was primarily attributable to
the Company's decision to streamline its catalog operations. This decrease was
offset in part by higher occupancy costs and payroll costs as a percentage of
net sales related primarily to the timing of new store openings.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $3.9 million in 1996 from $3.2 million in 1995, an
increase of $0.8 million or 24.3%. As a percentage of net sales, these expenses
decreased to 5.7% in 1996 from 6.1% in 1995, reflecting the leverage of
spreading these expenses over a larger revenue base.
INTEREST EXPENSE, NET. Interest expense increased to $1.6 million in
1996 from $1.2 million in 1995, an increase of $0.4 million, as a result of a
$6.1 million increase in the amount of subordinated notes outstanding during the
year and increased borrowings under the Company's revolving credit facility.
PROVISION FOR INCOME TAXES. The effective tax rate in 1996 was 40.7% as
compared to 20.3% in 1995. The lower effective tax rate in 1995 was primarily
attributable to the utilization of alternative minimum tax credit
carry-forwards. As of December 31, 1995, the Company had fully utilized its net
operating loss carryforwards.
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 1997, excluding sales generated by stores not open for all of 1997,
substantially all the Company's operating income and approximately 28% and 36%
of the Company's net sales were generated during the third and fourth quarters,
respectively. In addition, the Company has historically incurred operating
losses in its first quarter and anticipates that it will continue to do so
during the first quarter of each year for the foreseeable future.
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.
The following table sets forth certain data for each of the Company's
last eight fiscal quarters. The quarterly data set forth below were derived from
unaudited consolidated financial statements of the Company, which in the opinion
of management of the Company contain all adjustments (consisting only of normal
adjustments) necessary for a fair presentation of such data.
1996 1997
--------------------------------------------- ----------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR.
---- ---- ---- ---- ---- ---- ---- ----
(in thousands, except per share and operating data)
STATEMENT OF OPERATIONS DATA:
Net sales ......................... $ 9,131 $ 15,220 $ 19,652 $ 24,680 $ 12,265 $ 18,878 $ 24,129 $ 30,909
Gross profit ...................... 4,812 8,922 11,311 13,918 6,670 11,265 14,107 17,811
Selling, marketing and distribution 6,091 7,594 8,631 9,993 8,454 9,310 9,879 11,906
expenses
General and administrative expenses 979 997 976 985 1,035 1,076 1,118 1,509
Total operating expenses .......... 7,070 8,591 9,607 10,978 9,489 10,386 10,997 13,415
Income (loss) from operations ..... (2,258) 331 1,704 2,940 (2,819) 879 3,110 4,396
Net income (loss) ................. (1,522) (18) 755 1,420 (2,031) 228 1,607 2,861
Net income (loss) per share
Basic and Diluted ............ $ (0.16) $ (0.00) $ 0.07 $ 0.14 $ (0.20) $ 0.02 $ 0.14 $ 0.22
Weighted average shares outstanding
Basic ........................ 9,734 9,863 10,101 10,211 10,161 10,161 10,355 13,157
Diluted ...................... 9,734 9,863 10,138 10,420 10,161 10,421 10,652 13,271
AS A PERCENTAGE OF NET SALES:
Gross profit ...................... 52.7% 58.6% 57.6% 56.4% 54.4% 59.7% 58.5% 57.6%
Sellings, marketing and ........... 66.7 49.9 43.9 40.5 68.9 49.3 40.9 38.5
distribution expenses
General and administrative expenses 10.7 6.6 5.0 4.0 8.4 5.7 4.6 4.9
Total operating expenses .......... 77.4 56.4 48.9 44.5 77.4 55.0 45.6 43.4
Income (loss) from operations ..... (24.7) 2.2 8.7 11.9 (23.0) 4.7 12.9 14.2
Net income (loss) ................. (16.7) (0.1) 3.8 5.8 (16.6) 1.2 6.7 9.3
OPERATING DATA:
Comparable store sales (decrease) . (6.2)% (3.8%) (2.8%) 16.1% 16.4% 5.5% 5.2% 4.9%
increase
Stores open at end of period ...... 95 105 113 121 121 132 139 150
LIQUIDITY AND CAPITAL RESOURCES
During the last three years, the Company's primary uses of cash have
been to finance store openings and purchase merchandise inventories. The Company
has satisfied its cash requirements principally from proceeds from the sale of
debt and equity securities, including its initial public offering in September
1997, a revolving line of credit with its bank and in 1997 cash flow from
operations.
The Company completed its initial public offering of shares in
September 1997, and received net proceeds of approximately $35.6 million.
Approximately $21.5 million of the net proceeds were used to repay subordinated
debt, short-term borrowings and capital lease obligations. Remaining proceeds
were used for general corporate purposes and to increase working capital, and
the Company expects to use certain of the proceeds to finance store openings and
remodeling in 1998. Also, in the first quarter of 1998 the Company Board of
Directors authorized to the Company to repurchase up to $10 million of its
common stock. The shares repurchased will be used by the Company in its employee
stock option programs covering future option grants and for general corporate
purposes.
Cash flows (used in) provided by operating activities were ($1.8)
million and $7.3 million in 1996 and 1997, respectively. Inventories at December
31, 1997 were $16.7 million compared to $15.4 million at December 31, 1996, an
increase of $1.3 million. The Company's average inventories vary throughout the
year and increase in advance of its peak selling periods during the summer,
back-to-school and Christmas seasons. The increase in inventories is
attributable to opening 29 net new stores in 1997. The increase in accounts
payable is directly attributable to the increase in inventories. In addition,
the Company believes that it has generally negotiated favorable terms with its
overseas vendors, who in many instances allow the Company to pay for goods when
received rather than post letters of credit in advance.
Cash used in investment activities in 1997 and 1996 was $5.3 million
and $3.5 million, respectively. Cash flows used in investing activities relate
primarily to new store openings, retrofitting of existing stores, new fixtures
and the acquisition and implementation of a new computer system in 1996.
Cash provided by financing activities in 1997 and 1996 was $20.8
million and $5.2 million, respectively. In February 1996, the Company received
net proceeds of $2.5 million from the sale of 10% subordinated notes and Common
Stock. In November 1996, the Company received net proceeds of $4.2 million from
the sale of 10% subordinated notes and warrants to purchase Common Stock. In
September 1997, the Company received approximately $35.6 million from its
initial public offering and net proceeds of $723,000 from the exercise of stock
options and warrants.
The Company has a revolving credit facility with a bank that expires in
May 1998, which the Company expects to extend on comparable terms. The revolving
credit facility provides for a $3.0 million revolving line of credit that can be
used for cash advances and letters of credit. Interest on advances under the
revolving credit facility is payable monthly at the bank's prime rate (8.5% at
December 31, 1997). As of December 31, 1997, the Company had no advances and
$0.6 million of letters of credit outstanding. This facility is collateralized
by substantially all the assets of the Company and subjects it to various
restrictive covenants, including maintenance of minimum working capital and
tangible net worth levels, limitations on indebtedness and a prohibition on the
payment of dividends.
The Company plans to open approximately 35 net new stores in 1998. The
Company's average cost to open a store in 1997, including leasehold improvements
and furniture and fixtures, was approximately $70,000 (net of tenant improvement
allowances). The average per store initial inventory (partially financed by
trade payables) for the new 1997 stores was approximately $69,000 and
pre-opening expenses averaged approximately $15,000 per store. The average total
cost to build new stores will vary in the future, depending on various factors,
including local construction expenses, changes in store format and design and
tenant improvement allowances. In addition to new store openings, the Company
retrofitted 61 stores in 1997 at an average cost of $17,000 per store.
The Company believes that its existing cash balances and cash generated
from operations will be sufficient to fund its operations and planned expansion
through 1998.
YEAR 2000
The Company has conducted a review of its computer systems to address
the implications of the Year 2000 compliance. The Company is currently
developing an implementation plan to accomplish these objectives. Year 2000
compliance refers to the inability of certain computer systems to recognize
dates commencing on January 1, 2000. Such inability has the potential to
materially adversely affect the operation of computer systems. The Company
currently believes that by upgrading existing software and converting to new
software for certain tasks, Year 2000 compliance will not pose significant
operations problems and is not anticipated to be material to its financial
position or results of operations in any given year. However, there can be no
assurance that the systems of other companies on which the Company may rely will
be timely converted or that the failure to convert by another company would not
have an adverse effect on the Company. At the present time, the Company
estimates that the incremental cash requirements related to system upgrades and
Year 2000 compliance will not be material.
Such expenditures will be expensed or capitalized as appropriate.
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.
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.
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 the section entitled "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.
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 25, 1998 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, President and Director March 25, 1998
- ---------------------- (Principal Executive Officer)
Andrew D. Feshbach
/s/ ROBERTA J. MORRIS Chief Financial Officer, Treasurer and Assistant March 25, 1998
- --------------------- Secretary (Principal Financial and Accounting
Roberta J. Morris Officer)
/s/ FRED KAYNE Chairman of the Board March 25, 1998
- --------------
Fred Kayne
/s/ STEVEN C. GOOD Director March 25, 1998
- ------------------
Steven C. Good
/s/ ROBERT H. SCHNELL Director March 25, 1998
- ---------------------
Robert H. Schnell
/s/ KENNETH A. SOLOMON Director March 25, 1998
- ----------------------
Kenneth A. Solomon
/s/ DAVID J. WALSH Director March 25, 1998
- ------------------
David J. Walsh
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
PAGE
--------
Independent Auditors' Report .................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 .................... F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1996
and 1995 ................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1997, 1996 and 1995 ........................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 .............................................................. F-6
Notes to the Consolidated Financial Statements .................................. F-7
F-1
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 (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
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 the Company as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 20, 1998
F-2
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------
1997 1996
---- ----
ASSETS (NOTE 3)
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 23,508,000 $ 723,000
Receivables:
Trade, net ..................................................... 457,000 353,000
Other .......................................................... 294,000 617,000
Inventories (Note 9) ............................................. 16,714,000 15,403,000
Prepaid expenses and other current assets ........................ 744,000 478,000
Deferred income taxes (Note 6) ................................... 144,000 144,000
------- -------
Total current assets ............................................... 41,861,000 17,718,000
PROPERTY AND EQUIPMENT, Net (Notes 2 and 5) ........................ 10,232,000 7,445,000
INTANGIBLE ASSETS, Net (Note 1) .................................... 131,000 266,000
OTHER ASSETS (Note 1) .............................................. 360,000 344,000
------------- -----------
TOTAL .............................................................. $ 52,584,000$ 25,773,000
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital leases (Note 5) ..... $ -- $ 530,000
Accounts payable (Note 9) ........................................ 2,767,000 1,235,000
Income taxes payable (Note 6) .................................... 1,395,000 400,000
Accrued expenses and other current liabilities (Note 4) .......... 2,231,000 1,811,000
--------- ---------
Total current liabilities .......................................... 6,393,000 3,976,000
DEFERRED RENT (Note 7) ............................................. 650,000 488,000
OBLIGATIONS UNDER CAPITAL LEASES, Net of current portion (Note 5) .. -- 767,000
SUBORDINATED DEBT (Note 4) ......................................... -- 14,400,000
---------- ----------
Total liabilities ............................................ 7,043,000 19,631,000
--------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Notes 4 and 8):
Preferred stock, $.01 par value, 3,000,000 shares authorized,
none issued and outstanding .................................... $ -- $ --
Common stock $.01 par value, 30,000,000 shares authorized,
13,159,550 and 10,160,550 shares issued and outstanding at
December 31, 1997 and 1996, respectively ....................... 132,000 102,000
Additional paid-in capital ....................................... 42,224,000 5,705,000
Retained earnings ................................................ 3,732,000 1,067,000
Notes receivable from common stockholders ........................ (547,000) (732,000)
---------- ---------
Total stockholders' equity ................................... 45,541,000 6,142,000
---------- ---------
TOTAL .............................................................. $52,584,000 $25,773,000
=========== ===========
See notes to consolidated financial statements.
F-3
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
DECEMBER 31,
-------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
NET SALES (Note 9) ................................... $86,181,000 $68,683,000 $51,541,000
COST OF GOODS SOLD (Note 9) .......................... 36,328,000 29,720,000 21,571,000
-------------- -------------- --------------
GROSS PROFIT ......................................... 49,853,000 38,963,000 29,970,000
-------------- -------------- --------------
OPERATING EXPENSES:
Selling, marketing and distribution (Note 1) 39,549,000 32,309,000 24,814,000
General and administrative (Note 9) ................ 4,738,000 3,937,000 3,167,000
------------- ------------- -------------
Total operating expenses ......................... 44,287,000 36,246,000 27,981,000
------------- ------------- -------------
INCOME FROM OPERATIONS ............................... 5,566,000 2,717,000 1,989,000
INTEREST EXPENSE, NET (Notes 3, 4,
and 5) ............................................. 1,268,000 1,647,000 1,189,000
------------- ------------- -------------
INCOME BEFORE PROVISION FOR INCOME
TAXES .............................................. 4,298,000 1,070,000 800,000
PROVISION FOR INCOME TAXES (Note 6) 1,633,000 435,000 162,000
----------- ----------- -----------
NET INCOME ........................................... $ 2,665,000 $ 635,000 $ 638,000
=========== =========== ===========
NET INCOME PER SHARE (Note 1)
BASIC AND DILUTED .................................. $ 0.24 $ 0.06 $ 0.07
=========== =========== ===========
See notes to consolidated financial statements.
F-4
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NOTES
COMMON STOCK ADDITIONAL RETAINED RECEIVABLE
PAID-IN EARNINGS FROM COMMON
SHARES AMOUNT CAPITAL (DEFICIT) STOCKHOLDERS TOTAL
--------- --------- ----------- ------------ ------------ -----------
BALANCE, JANUARY 1, 1995............ 9,000,000 $ 90,000 $ 3,210,000 $ (206,000) -- $ 3,094,000
Common stock issued (Note 4) 670,000 7,000 998,000 -- -- 1,005,000
Net income ....................... -- -- -- 638,000 -- 638,000
----------- ---------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 9,670,000 97,000 4,208,000 432,000 -- 4,737,000
Common stock issued
(Notes 4 and 8) ................ 540,550 5,000 1,395,000 -- $ (855,000) 545,000
Warrants issued (Note 4) ......... -- -- 240,000 -- -- 240,000
Repurchased common stock
(Note 8) ....................... (50,000) -- (138,000) -- 123,000 (15,000)
Net income ....................... -- -- -- 635,000 -- 635,000
----------- ---------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 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 8) ...... -- -- 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
=========== ========= =========== =========== ============ ============
See notes to consolidated financial statements.
F-5
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
------------------------------------
1997 1996 1995
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $2,665,000 $ 635,000 $ 638,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................... 2,620,000 1,931,000 1,059,000
Provision for losses on receivables ..................... 25,000 174,000 57,000
Loss on disposition of property and equipment ........... 37,000 35,000 --
Deferred income taxes ................................... -- 80,000 (224,000)
Changes in operating assets and liabilities:
Receivables ........................................... 194,000 (387,000) 327,000
Inventories ........................................... (1,311,000) (4,577,000) (2,980,000)
Prepaid expenses and other assets ..................... (266,000) (45,000) (225,000)
Accounts payable ...................................... 1,532,000 (641,000) (1,463,000)
Income taxes payable .................................. 1,245,000 35,000 360,000
Accrued expenses and other current liabilities ........ 420,000 740,000 2,000
Deferred rent ......................................... 162,000 258,000 230,000
------------ ------------ ------------
Net cash provided by (used in) operating activities.. 7,323,000 (1,762,000) (2,219,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................................... (5,285,000) (3,377,000) (2,346,000)
Other ..................................................... (23,000) (108,000) (18,000)
------------ ------------ ------------
Net cash used in investing activities ............... (5,308,000) (3,485,000) (2,364,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock .................... 35,576,000 545,000 1,005,000
Repurchase of common stock ................................ -- (15,000) --
Proceeds from issuance of warrants ........................ -- 114,000
Proceeds from exercise of options ......................... 171,000 -- --
Proceeds from exercise of warrants ........................ 552,000 -- --
Collection of notes receivable ............................ 185,000
Proceeds from subordinated debt ........................... -- 7,900,000 8,270,000
Principal repayments of subordinated debt ................. (14,400,000) (1,774,000) (3,500,000)
Principal repayments under capital lease obligations ...... (1,314,000) (344,000)
--
Short-term borrowings, net ................................ -- (1,225,000) (1,286,000)
------------ ------------ ------------
Net cash provided by financing activities ........... 20,770,000 5,201,000 4,489,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 22,785,000 (46,000) (94,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................ 723,000 769,000 863,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR.... .................. $23,508,000 $ 723,000 $ 769,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest ................................................ $ 1,659,000 $1,521,000 $1,225,000
Income taxes ........................................... $ 388,000 $ 367,000 $ 42,000
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company entered into capital lease obligations of $18,000, $533,000, and
$1,108,000 for equipment for the years ended 1997, 1996, and 1995, respectively
(see Note 5).
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 8).
In 1996, the Company refinanced $138,000 of capital lease obligations (see Note
5).
In 1996, a stockholder converted $2,226,000 of short-term subordinated debt to
$2,100,000 of long-term subordinated debt and warrants valued at $126,000.
In July 1996, certain key employees and other individuals issued $855,000 of
long-term notes receivable to the Company as payment for common stock (see Note
8).
In December 1996, the Company repurchased 50,000 shares of common stock for
$138,000, $123,000 of which was by the retirement of a related long-term note
receivable (see Note 8).
See notes to consolidated financial statements.
F-6
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 (the "Offering"). 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 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 or the stated interest rates are indicative of market interest
rates. A reasonable estimate of fair value is not practicable for subordinated
debt due to the limited availability of similar financing.
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.
F-7
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
INTANGIBLE ASSETS
Intangible assets are stated at cost and amortized using the
straight-line method over five years. Accumulated amortization was $534,000 and
$393,000, at December 31, 1997 and 1996, respectively.
OTHER ASSETS
Other assets include long-term deposits of $353,000 and $293,000 at
December 31, 1997 and 1996, respectively, which relate primarily to leased
facilities, including retail stores.
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 $547,000, $439,000,
$640,000 in 1997, 1996 and 1995, respectively, of store preopening expenses,
which are expensed as incurred.
INCOME TAXES
Deferred income taxes reflect the income tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, (b) net
operating loss and tax credit carryforwards, and (c) valuation allowances, when
necessary, to reduce deferred income tax assets to the amount expected to be
realized (see Note 6).
F-8
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share", for the year ended December 31, 1997.
SFAS No. 128 requires the Company to present basic and diluted earnings per
share on the face of the income statement. 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 weighted average number of shares
outstanding used to compute basic earnings per share were 10,965,000, 9,978,000
and 9,503,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, and for computing diluted earnings per share were 11,187,000,
10,049,000 and 9,503,000 for the same respective years. The following reconciles
the numerator and denominator of the basic and diluted per-share computations
for net income:
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------------ ------------ ------------
Net income ...................................................... $2,665,000 $ 635,000 $ 638,000
Basic Weighted Average Shares: ============ ============ ============
Weighted average number of shares outstanding ................. 10,965,000 9,978,000 9,503,000
Effect of Dilutive Securities:
Options and warrants ......................................... 222,000 71,000 --
------------ ------------ ------------
Diluted Weighted Average Shares:
Weighted average number of shares outstanding and common
share equivalents ............................................ 11,187,000 10,049,000 9,503,000
============ ============ ============
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. SFAS No. 131 is
effective for financial statements issued for periods beginning after December
15, 1997. The Company has determined the adoption of SFAS No. 131 will not have
a material impact on the financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
------------
1997 1996
------------ -----------
Leasehold improvements ............................ $ 5,866,000 $ 3,926,000
Equipment and fixtures (Note 5) ................. 9,792,000 6,548,000
------------ -----------
15,658,000 10,474,000
Less accumulated depreciation and
amortization .................................. (5,426,000) (3,029,000)
------------ ------------
Property and equipment, net ..................... $10,232,000 $ 7,445,000
============ ===========
F-9
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation and amortization expense on property and equipment totaled
$2,479,000, $1,794,000, $932,000 in 1997, 1996 and 1995, respectively.
3. SHORT-TERM BORROWINGS
The Company has a line of credit arrangement with a bank whereby the
Company may borrow up to $3,000,000 as cash advances and letters of credit.
There were no outstanding balances on the line of credit as of December 31, 1997
and 1996, respectively. The line of credit currently bears interest at the
bank's prime lending rate, expires on May 2, 1998, and is collateralized by
substantially all assets of the Company. The short-term borrowings bore interest
at the rate of 8.5% and 8.75% at December 31, 1997 and 1996, respectively.
This credit arrangement contains various restrictive covenants,
including maintenance of minimum working capital and tangible net worth levels
and limitations on indebtedness. The credit arrangement also prohibits the
payment of dividends by the Company. The Company was in compliance with all debt
covenants as of December 31, 1997.
The Company has commitments under letters of credit totaling $551,000,
at December 31, 1997. The letters of credit expire through May 1, 1998.
4. SUBORDINATED DEBT
In April 1995, the Company completed a private placement of 67 units to
new investors, each unit consisting of a $60,000 promissory note, which bore
interest at 10%, and 10,000 shares of common stock of Big Dog Holdings, Inc. at
$1.50 per share. Proceeds from the offering, totaling $5,025,000, consisted of
$1,005,000 from the issuance of 670,000 shares of common stock and $4,020,000
from the issuance of subordinated notes. Of the proceeds received, $3,500,000
was used to repay certain stockholder notes outstanding at December 31, 1994.
The notes were due at the earlier of April 3, 2002 or the consummation of an
initial public offering. Upon completion of the Offering, the $4,020,000 of
subordinated debt was repaid by the Company. During 1995, the Company also
issued additional subordinated debt to an existing stockholder totaling
$4,250,000 which was due in 1998 and bore interest at the rate of 10% per annum.
Upon completion of the Offering, all of the above discussed subordinated debt
was repaid by the Company.
In February 1996, the Company completed a private placement of 50 units
to investors, each unit consisting of a $40,000 promissory note which bore
interest at 10%, and 3,861 shares of common stock of Big Dog Holdings, Inc. at
$2.59 per share. Proceeds from the offering, totaling $2,500,000, consisted of
$500,000 from the issuance of 193,050 shares of common stock and $2,000,000 from
the issuance of subordinated notes. The notes were due the earlier of November
4, 2003 or the consummation of an initial public offering. Upon completion of
the Offering, the $2,000,000 of subordinated debt was repaid by the Company.
F-10
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUBORDINATED DEBT (CONTINUED)
In November 1996, the Company completed a private placement of 10 "A"
units and 10 "B" units to investors. Each "A" unit consisted of a $200,000
promissory note, which bore interest at 10%, and 12,000 redeemable "A" warrants.
Each "B" unit consisted of a $200,000 promissory note, which bore interest at
10%, and 12,000 redeemable "B" warrants. Each "A" warrant is exercisable at any
time for the purchase of one share of the Company's common stock at $3.00 per
share. Each "B" warrant is exercisable at any time for the purchase of one share
of the Company's common stock at $4.00 per share. All warrants expire in five
years from the date of grant. Proceeds from this offering, totaling $4,240,000,
consisted of $240,000 from the issuance of 120,000 "A" warrants and 120,000 "B"
warrants and $4,000,000 from the issuance of subordinated debt. During 1997,
24,000 "A" warrants and 120,000 "B" warrants were exercised. Upon completion of
the Offering, the $4,000,000 of subordinated debt was repaid by the Company. The
Company may redeem all or part of any unexercised warrants at a price of $2.50
per warrant if the stock trades at a price equal to or greater than $21.00 per
share for a period of 20 out of 30 consecutive trading days.
At December 31, 1996, accrued interest on the notes discussed above
totaled $174,000. Interest expense on these notes for the years ended December
31, 1997, 1996 and 1995 amounted to $1,077,000, $1,535,000 and $766,000,
respectively.
5. OBLIGATIONS UNDER CAPITAL LEASES
Upon completion of the Offering, the Company paid off all existing
capital leases. At December 31, 1996, capital lease assets and related
accumulated amortization included in property and equipment in the consolidated
balance sheets amounted to $1,988,000 and $415,000, respectively.
6. INCOME TAXES
Significant components of the Company's net deferred income tax assets
are as follows:
DECEMBER 31,
------------------------
1997 1996
---------- ---------
Deferred income tax assets:
Allowance for doubtful receivables and sales returns ........ $ 40,000 $ 36,000
Accrued vacation ............................................ 30,000 34,000
Inventory uniform capitalization ............................ 324,000 302,000
Intangible assets ........................................... 148,000 109,000
State income taxes .......................................... 39,000 18,000
Alternative minimum tax credits ............................. 26,000 88,000
Stockholders' accrued interest .............................. -- 67,000
Other ....................................................... 70,000 --
---------- ---------
Total deferred income tax assets .............................. 677,000 654,000
---------- ---------
Deferred income tax liabilities:
Prepaid expenses ............................................ (92,000) (59,000)
Depreciation ................................................ (441,000) (451,000)
---------- ---------
Total deferred income tax liabilities ......................... (533,000) (510,000)
---------- ---------
Deferred income tax asset ..................................... $ 144,000 $ 144,000
========== =========
F-11
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
---- ---- ----
Current:
Federal ....................................... $ 1,438,000 $ 321,000 $ 324,000
State ......................................... 195,000 34,000 62,000
------------ ---------- -----------
Total ........................................... 1,633,000 355,000 386,000
------------ ---------- -----------
Deferred:
Federal ....................................... 5,000 102,000 (202,000)
State ......................................... (5,000) (22,000) (22,000)
------------ ---------- -----------
Total ........................................... -- 80,000 (224,000)
------------ ---------- -----------
Total income tax provision ...................... $ 1,633,000 $ 435,000 $ 162,000
============ ========== ===========
The Company's effective income tax rate differs from the federal
statutory income tax rate due to the following:
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
Federal statutory income tax rate ........... 34.0 % 34.0 % 34.0 %
State taxes, net of federal benefit ......... 3.2 2.4 4.7
Use of net operating loss carryforwards ..... -- (5.0)
Alternative minimum credits ................. -- (15.6)
Other, net .................................. 0.8 4.3 2.2
------ ------ ------
Total ....................................... 38.0 % 40.7 % 20.3 %
====== ====== ======
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases retail stores, office buildings and warehouse space
under lease agreements that expire through 2007. Future minimum lease payments
under noncancelable operating leases are as follows:
YEARS ENDING DECEMBER 31,
- -------------------------
1998 ..................................................... $12,366,000
1999 ..................................................... 11,229,000
2000 ..................................................... 9,442,000
2001 ..................................................... 6,604,000
2002 ..................................................... 3,812,000
Thereafter ............................................... 8,522,000
-----------
Total .................................................... $51,975,000
===========
F-12
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 amount paid and the effective rent recognized for
financial statement purposes is reported as deferred rent.
Rent expense for the years ended December 31, 1997, 1996 and 1995
totaled $11,333,000, $8,431,000, and $4,774,000, respectively, and includes
contingent rentals of $149,000, $79,000, and $49,000 for the years ended
December 31, 1997, 1996 and 1995, 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.
STOCKHOLDERS' EQUITY
PREFERRED STOCK
On August 1, 1997 the Board of Directors of the Company approved the
authorization of 3,000,000 shares of $0.01 par value preferred stock. No shares
of preferred stock have been issued as of December 31, 1997.
1996 STOCK INCENTIVE PLAN
In July 1996, the Company issued 347,500 shares of common stock under
the 1996 Stock Incentive Plan (the "Plan"). The Plan authorized the issuance of
up to 500,000 shares of the Company's common stock to key employees and other
persons. The shares were sold at $2.59 per share, which the Board of Directors
determined to be at or above the fair market value, with proceeds to the Company
consisting of $45,000 in cash and the balance of $855,000 in full recourse notes
receivable. The notes receivable are due ten years from their date of issuance,
bear interest at the rate of 7% per annum, are secured by the common stock
acquired and are included as a component of stockholders' equity in the
consolidated financial statements. The Plan was terminated on December 31, 1996.
The stock vests over a two-year period, with one-third of the shares
vesting at the purchase date. On December 31, 1996, the Company reacquired
50,000 shares at an average of $2.76 per share. During 1997, $185,000 of the
notes receivables were repaid to the Company.
F-13
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
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
non-qualified 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. In 1997, options for
92,500 shares were granted at exercise prices from $5.00 to $7.50 per share.
Such options vest one-third each year, beginning one year after the grant date
and expire ten years from the date of grant. The 1997 Stock Option Plan was
terminated on August 1, 1997.
On August 1, 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 is 1,000,000. 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. During 1997, the Company granted options
under this plan for the purchase of 389,500 shares of common stock at exercise
prices ranging from $10.25 to $14.00 per share, the fair value of the shares at
the date of grant. Such options vest at 20% each year, beginning one year after
the grant date and expire seven to ten years from the date of grant.
The following summarizes stock option activity for the periods presented:
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
---------------- ----------------
Balance at December 31, 1995 ...... -- --
Options granted ................. 55,000 $ 3.10
---------------- ----------------
Balance at December 31, 1996. 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
================ ================
F-14
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
1997 1996
---- ----
Weighted-average fair value of options granted during the year ..$ 4.37 $ 1.55
The following table summarizes information about stock options outstanding at
December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------------------------
NUMBER NUMBER
OUTSTANDING WEIGHTED-AVERAGE EXERCISABLE
RANGE OF AT DECEMBER REMAINING WEIGHTED-AVERAGE AT DECEMBER WEIGHTED-AVERAGE
EXERCISE PRICES 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE 31, 1997 EXERCISE PRICE
- ----------------- -------------- ------------------ --------------------- ----------------- ---------------------
$ 5.00 - $ 7.50 92,500 9.2 years $ 6.01 0 $ --
$10.25 20,000 6.9 years 10.25 0 --
$ 12.00 - $14.00 356,250 7.0 years 12.49 0 --
- ----------------- -------------- ------------------ --------------------- ----------------- ---------------------
$ 5.00 - $14.00 468,750 7.4 years $11.11 0 $ --
================= ============== ================== ===================== ================= =====================
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.
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: expected life of
7.7 years following vesting; stock price volatility of 7%; risk free interest
rate of 6.4%; and no dividends during the expected term. Forfeitures are
recognized as they occur. If the computed fair values of the 1997 and 1996
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. There were no stock options granted prior to 1996.
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---- ----
Net income:
As reported .............................. $ 2,665,000 $ 635,000
Pro forma ................................ 2,567,000 584,000
Net income per share:
As reported:
Basic and diluted ................... $ 0.24 $ 0.06
Pro forma:
Basic and diluted ................... $ 0.23 $ 0.06
F-15
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS
Certain of the Company's stockholders and officers have ownership
interests in certain merchandise vendors to the Company. Merchandise inventory
purchased from these related vendors totaled $8,636,000, $8,030,000, and
$6,696,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Included in accounts payable are $412,000 and $62,000 due to these vendors at
December 31, 1997 and 1996, respectively. During 1996, the Company also
processed certain sales for one of these merchandise vendors and recorded
revenue of $71,000.
The Company also received advisory, legal and consulting services from
related parties. Such expenses incurred for the years ended December 31, 1997,
1996 and 1995 were $120,000, $208,000, and $388,000, respectively, 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. During 1997, construction services provided to the Company totaled
$371,000.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(In thousands, except per share)
Year ended December 31, 1997:
Net sales .................................. $ 12,265 $ 18,878 $ 24,129 $ 30,909
Gross profit ............................... 6,670 11,265 14,107 17,811
Selling, marketing and distribution expenses 8,454 9,310 9,879 11,906
General and administrative expenses ........ 1,035 1,076 1,118 1,509
Total operating expenses ................... 9,489 10,386 10,997 13,415
Income (loss) from operations .............. (2,819) 879 3,110 4,396
Net income (loss) .......................... (2,031) 228 1,607 2,861
Net income (loss) per share
Basic and diluted ....................... $ (0.20) $ 0.02 $ 0.14 $ 0.22
Weighted average shares outstanding
Basic ................................... 10,161 10,161 10,355 13,157
Diluted ................................. 10,161 10,421 10,652 13,271
Year ended December 31, 1996:
Net sales .................................. $ 9,131 $ 15,220 $ 19,652 $ 24,680
Gross profit ............................... 4,812 8,922 11,311 13,918
Selling, marketing and distribution expenses 6,091 7,594 8,631 9,993
General and administrative expenses ........ 979 997 976 985
Total operating expenses ................... 7,070 8,591 9,607 10,978
Income (loss) from operations .............. (2,258) 331 1,704 2,940
Net income (loss) .......................... (1,522) (18) 755 1,420
Net income (loss) per share
Basic and Diluted ....................... $ (0.16) $ (0.00) $ 0.07 $ 0.14
Weighted average shares outstanding
Basic ................................... 9,734 9,863 10,101 10,211
Diluted ................................. 9,734 9,863 10,138 10,420
F-16
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation*
3.1A Certificate of Correction*
3.2 Amended and Restated Bylaws
4.1 Reference is hereby made to Exhibits 3.1*, 3.1A* and 3.2
4.2 Specimen Stock Certificate*
10.1 Amended and Restated Credit Agreement dated as of June 30,
1995 between Big Dog Holdings, Inc., Big Dog USA, Inc.,
and Fortune Dogs, Inc.,* as amended by First Amendment,
dated as of February 15, 1996*, Second Amendment dated as
of April 30, 1996,* Third Amendment dated as of May 3,
1997* and Fourth Amendment to Amended and Restated Credit
Agreement dated as of November 10, 1997
10.2 Form of Stockholder Agreement made as of January 2, 1996
between Big Dog Holdings, Inc. and certain stockholders*
10.3 Forms of Notes and Warrants issued November 4, 1996*
10.6 1996 Stock Incentive Plan*
10.7 Form of Purchase Agreement under the Big Dog Holdings,
Inc. 1996 Stock Incentive Plan*
10.8 1997 Stock Option Plan*
10.9 Form of Stock Option Agreement under the 1997 Stock Option
Plan*
10.10 Amended and Restated 1997 Performance Award Plan*
10.10A Form of Employee Nonqualified Stock Option Agreement under
1997 Performance Award Plan*
10.11 Lease between Big Dog USA, Inc. and The Prudential
Insurance Company of America dated November 4, 1997
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 and Third Lease
Amendment dated as of July 22, 1996*
10.13 Lease Agreement between Big Dog Holdings, Inc., and the
Eldred Family Trust & Jason Eldred Trust dated as of
April 4, 1996*
10.14 Form of Indemnification Agreement*
21.1 List of Subsidiaries of Big Dog Holdings, Inc.*
24.1 Power of Attorney (included in signature page)*
27.1 Financial data schedule
- -------------
* Incorporated by reference from the Company's Form S-1 Registration Statement
(No. 333-33027), as amended, which became effective September 25, 1997