-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F2AAtltv3UAHguKm3oIuikBAzBSaFrTnYkltt0rW/bdo1Sxw/svnXlUSlvTsxtFb nBc48vqdvmSFYdWrTFxOFg== 0001019439-00-000004.txt : 20000411 0001019439-00-000004.hdr.sgml : 20000411 ACCESSION NUMBER: 0001019439-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIG DOG HOLDINGS INC CENTRAL INDEX KEY: 0001019439 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 521868665 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22963 FILM NUMBER: 582289 BUSINESS ADDRESS: STREET 1: 121 GRAY AVENUE STREET 2: SUITE 300 CITY: SANTA BARBARA STATE: CA ZIP: 93101 BUSINESS PHONE: 8059638727 MAIL ADDRESS: STREET 1: 121 GRAY AVENUE STREET 2: SUITE 300 CITY: SANTA BARBARA STATE: CA ZIP: 93101 10-K 1 FORM 10-K FOR 1999 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER: 0-22963 BIG DOG HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 52-1868665 -------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 121 GRAY AVENUE, SANTA BARBARA, CALIFORNIA 93101 - ------------------------------------------ ----- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) (805) 963-8727 -------------- (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of Common Stock held by non-affiliates of the registrant on March 1, 2000 was approximately $23.4 million. All outstanding shares of Common Stock, other than those held by executive officers, directors and 10% shareholders, are deemed to be held by non-affiliates. On March 1, 2000, the registrant had 12,000,350 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates information by reference from the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders, to be filed with the Commission no later than 120 days after the end of the registrant's fiscal year covered by this Form 10-K. PART I ITEM 1. BUSINESS GENERAL Big Dog Holdings, Inc. and its subsidiaries ("Big Dogs" or the "Company") develops, markets and retails a branded, lifestyle collection of unique, high-quality, popular-priced consumer products, including activewear, casual sportswear, accessories and gifts. BIG DOGS(R) is an All-American, family-oriented brand that the Company believes has established a unique niche in its dedication to providing quality, value and fun. Big Dogs products were first sold in 1983, and operations remained limited through 1992 when the current controlling stockholders acquired the BIG DOGS(R) brand and related assets. Following the acquisition, Big Dogs initiated a strategy of leveraging the brand through dramatic expansion of its product line and rapid growth in its retail stores. The number of the Company's stores has grown from 5 in 1993 to 191 as of December 31, 1999. The Company's collection is centered around its signature BIG DOGS(R) name, logo and "Big Dog" characters and is designed to appeal to a broad range of customers. The BIG DOGS(R) brand conveys a sense of fun, humor and a "Big Dog attitude," whereby each customer can feel that he or she is a "Big Dog." The Big Dog attitude and sense of fun are brought to life through the Company's graphic capabilities that portray the Big Dog characters in a number of engaging, positive and inspiring situations and activities. The Big Dog attitude is further defined by a number of slogans such as "If You Can't Run with the Big Dogs Stay on the Porch"(R), "Large and In Charge" and "Attitude is Everything." These graphics and slogans combine a bold, spirited attitude with wry, lighthearted humor. The appeal of the brand is further strengthened through a customer's personal identification with particular sports and other activities depicted in these graphics. In addition to its focus on fun, Big Dogs develops customer loyalty and enhances its brand image by providing a consistently high level of quality at moderate price points. Big Dogs accomplishes this primarily through (i) selling its own brand directly to the consumer, (ii) low-cost product development, and (iii) sourcing high-volume/low-cost basic apparel with limited fashion risk. The BIG DOGS(R) brand is designed to appeal to men, women and children of all ages, particularly baby boomers and their kids, when they are engaged in leisure or recreational activities. Furthermore, the Company believes that the millions of dog and other pet owners in the United States, as well as children, have a strong natural affinity toward the dog-related images and themes in Big Dogs graphics. In addition, the Company believes that the positive image the brand brings to being a "Big Dog" has a special appeal to large-size customers. The Company's apparel products, which include a wide variety of basic apparel and related products, are developed with an emphasis on being functional rather than fashion-forward or trendy. These apparel products include graphic T-shirts, shorts, knit and woven shirts, fleece items, loungewear and boxer shorts. In addition to its BIG DOGS(R) line of activewear and casual sportswear for men and women, the Company has expanded its LITTLE BIG DOGS(R) line of infants' and children's apparel and its BIG BIG DOGS(R) line of big-size apparel. The Company has also expanded its non-apparel products, including plush animals, stationery and pet products, which feature Big Dog graphics and are developed to complement its apparel. The Company reinforces its brand image by distributing BIG DOGS(R) products primarily through its own retail stores. This distribution strategy enables the Company to present a complete selection of its merchandise in a creative and fun environment. In addition, this strategy enables it to more effectively reach its targeted customers by locating stores in tourist-oriented and other casual environments where it believes consumers are more likely to be in the "Big Dog state of mind." The Company operates its retail stores in both outlet and full-price formats, depending on the location. In addition to its retail stores, Big Dogs markets its products through other channels, including its catalog, better wholesale accounts and website. BUSINESS STRATEGY Big Dogs' mission is to build a brand that is recognized throughout the world for providing high quality, good value and fun and functional products. To achieve this goal, the Company has adopted the following operating strategies: PROMOTE THE BIG DOG SPIRIT OF FUN. A key and unique element in the Company's brand image is its focus on fun. This spirit of fun revolves around the Company's Big Dog character that has broad appeal to men, women and children of all ages. The Company fosters this spirit by creating positive, humorous, topical and inspiring graphics and slogans which it applies to its merchandise. More than just a logo, the Big Dog represents the leader, athlete, child, comedian, musician, boss, traveler, parent and dog lover in everyone. Big Dog products are fun, not only because of their graphics and slogans, but also because they are designed for recreational, sports and leisure activities and make ideal gifts. Big Dogs' focus on fun is further enhanced by the lively, enjoyable atmosphere in its retail stores and is also reflected in its catalog and marketing promotions and activities. DELIVER HIGH QUALITY AT A GOOD VALUE. Big Dogs' products are constructed using high-quality fabrics and other materials. Many of its products feature unique graphics characterized by advanced print techniques, as well as unique appliques and embroideries on many of its apparel products. The Company believes that this combination of quality fabrics and graphics in its apparel products provides the customer with a product that has an exceptional look and feel. Big Dogs is able to deliver this level of quality at reasonable prices primarily as a result of (i) selling its own brand direct to the consumer, (ii) low-cost product development, (iii) sourcing of basic apparel, and (iv) low marketing costs. The Company believes that delivering quality and value is instrumental in generating customer appeal and brand loyalty for its products, particularly those that do not prominently feature Big Dog graphics. ENHANCE FUNCTIONAL PRODUCTS WITH GRAPHICS. Big Dogs develops functional rather than fashion-forward products. The Company believes it has a special competency in creating distinctive, popular graphics which it uses to differentiate its products from those of its competitors. Big Dogs has developed a broad assortment of classic, functional clothing ("basics") in traditional, less fashion-forward colors. The Company's focus on basics and its ability to leverage its graphics across multiple product categories have allowed the Company to eliminate the need for a traditional buyer or design staff, and thereby lower its product development costs compared to most fashion apparel companies. Furthermore, since its graphics are added in the last stage of production, the Company is able to be more responsive to customer preferences while also lowering its inventory risk. TARGET A BROAD, DIVERSE CUSTOMER BASE. Big Dogs believes it has established an All-American, family-oriented brand featuring products, graphic themes, slogans and promotions that appeal to a broad range of consumers. Although its marketing focus is on baby boomers and their kids, Big Dogs' customers include men, women and children of all ages, and span a wide range of geographic areas and income levels. Furthermore, the Company believes that the millions of dog and other pet owners in the United States, as well as children, have a strong natural affinity for the dog-related images and themes in Big Dogs graphics. In addition, the Company believes that the positive image the brand brings to being a "Big Dog" has a special appeal to big-size customers. MAINTAIN CONTROLLED DISTRIBUTION. Big Dogs sells its products primarily through its own stores and, to a lesser extent, through its catalog and website. By selling direct to its customers, Big Dogs is able to present its complete line of merchandise in a creative and fun environment. This also allows it to target its customers more precisely by locating its stores in tourist-oriented and other high-traffic areas, where the Company believes consumers are more likely to be in the "Big Dog state of mind." Selling direct to the consumer also allows the Company (i) to enhance its margins while still providing customer value, (ii) to be more responsive to customer feedback, especially with regard to new product development, (iii) to reduce its need to build brand awareness through large-scale media advertising, and (iv) to collect customer names for its catalog through in-store sign-ups. CREATE AN ENTERTAINING SHOPPING EXPERIENCE. Big Dogs seeks to create a distinctive and fun shopping environment in its stores through an innovative display of its graphic art and humor, including in-store "T-shirt walls" and other displays that are designed to immediately put the customer in the "Big Dog state of mind." By showcasing the Company's complete product line, Big Dogs stores offer something for everyone in the family. Effective cross-merchandising in the stores is designed to add excitement and prompt add-on purchases. The Company believes the customer's shopping experience is further enhanced by the Company's knowledgeable and enthusiastic sales staff. EMPHASIZE GRASSROOTS MARKETING. The Company believes its most effective marketing is its products themselves and their presentation in the Company's retail stores, catalog and website. As a result, the Company has spent relatively little on advertising. Also important to Big Dogs' marketing strategy is its targeted "grassroots" marketing activities. These activities include local and charity sponsorships (such as high school sports teams), community-oriented promotional events (such as the Company's annual dog parade in Santa Barbara), and corporate cross-promotions with leading consumer product companies (such as Nabisco and PETsMART.com). The Company's continued growth will depend to a significant degree on its ability to open and operate new stores, to increase net sales and profitability from the Company's existing stores, and to expand its other sources of revenue. Big Dogs' primary growth strategy is the continued expansion of its retail stores. The Company opened 14 net new stores in 1999. The Company opens stores in locations and venues that management believes best target its customers and can be obtained on terms that meet its unit profitability requirements. Depending on the location, the Company will open new stores in either an outlet or full-price format. Accordingly, the Company anticipates that the stores it opens in the near future will be located in a variety of venues, including outlet malls, stand-alone stores in tourist areas, tourist-oriented malls, regional malls and metropolitan locations. These new markets and venues have in the past presented, and will continue to present, competitive and merchandising challenges that are different from those faced by the Company in its existing markets and venues. MERCHANDISING Big Dogs' product line features a branded, lifestyle collection of unique, high-quality, popular-priced consumer products, including activewear, casual sportswear, accessories and gifts. Big Dogs' apparel lines include full collections of classic unisex casual sportswear and activewear for adults, as well as collections for infants and children and the big-size market. Big Dogs has also in recent years further expanded its product lines to include not only a wide variety of apparel accessories, but also a collection of gift and consumer products. The Company continuously explores opportunities to further leverage its brand and graphics into new product lines. The Company's apparel products are manufactured from premium cotton, or, in some instances, cotton/ synthetic blends. Big Dogs' apparel is characterized by quality fabrics, construction and embellishments, and is distinguished from other apparel lines by the BIG DOGS(R) name, dog logo, graphics and slogans. In addition to its distinctive graphics, the Company believes it has achieved recognition for the quality and performance of its products. For example, the Company's solid nylon volley shorts and madras plaid shorts were selected by the Atlanta Committee for the Olympic Games to be officially licensed shorts for the 1996 Atlanta Olympics. The majority of the Company's products range from between $4 and $45. The following table sets forth the approximate contribution that each of the Company's product categories made to total net sales in the Company's retail stores for the year ended December 31, 1999:
% OF TOTAL RETAIL STORE* NET SALES ------------ Adult Apparel and Accessories .................................... 55.3% Infants' and Children's Apparel and Accessories .................. 21.0 Big-size Apparel ................................................. 17.8 Non-Apparel Products ............................................. 5.9 ----- Total ................................................... 100.0% =====
*Does not include mail order, wholesale and internet sales. ADULT APPAREL AND ACCESSORIES. Big Dogs sells a complete line of adult unisex activewear and casual sportswear. The Company offers screen-printed and embroidered T-shirts and sweatshirts, in a variety of styles and colors, that generally prominently display the Big Dogs graphics and slogans. In addition, the Company offers shorts, knit and woven casual shirts, fleece tops and bottoms, loungewear, boxer shorts, swimwear and sleepwear, all of which feature print designs or simply the BIG DOGS(R) name and/or dog logo. The Company's adult apparel line primarily focuses on basic items that recur with relatively minor variation from season-to-season and year-to-year. While certain of Company's classic, popular items and graphics have been in the Big Dogs line with very little change for over 10 years, the Company introduces new apparel and other products throughout the year to ensure that the merchandise assortments are consistent with the top sellers within its competitive market. Big Dogs leverages its trademarks, characters and more popular graphics by carefully translating them to a wide variety of apparel accessories, including caps, ties, socks, sunglasses, bags, watches and wallets. These products are developed and introduced based on their consistency with Big Dog's brand image and whether they complement the Company's other products. The Company's introduction of accessories not only provides an opportunity to create add-on purchases, but also minimizes product development costs and inventory risk by utilizing graphics and slogans that have first proven popular on the Company's graphic T-shirts. INFANTS' AND CHILDREN'S APPAREL AND ACCESSORIES. The LITTLE BIG DOGS(R) line includes infants, toddlers, kids and youth sizes. Products in this line include graphic T-shirts, shirts, fleece items, infant and toddler one-pieces, boxer shorts, dresses and shorts, virtually all of which feature distinctive graphics. The graphics and fabrics of this line are designed to mirror many of the more popular graphics and fabrics in the BIG DOGS(R) adult line in order to encourage family purchases and leverage overall product development costs. The Company sells its LITTLE BIG DOGS(R) line primarily through its retail stores, catalog and website, and wholesales it to certain specialty and better department stores. BIG-SIZE APPAREL. The Company believes that the BIG DOGS(R) image and the positive emphasis the brand gives to being a "Big Dog" have a unique appeal to consumers who wear big sizes. In the spring of 1996, the Company significantly expanded its BIG BIG DOGS(R) category targeting big-size customers. The Company's BIG BIG DOGS(R) category offers a line of unisex activewear and casual sportswear. As with the regular adult sizes, this category features screen-printed and embroidered T-shirts and sweatshirts, in a variety of styles and colors, that generally prominently display the Big Dogs graphic themes and slogans. In addition, the Company offers shorts, knit and woven casual and sports shirts, fleece tops and bottoms, loungewear, boxer shorts, swimwear and sleepwear, which may feature print designs or simply the BIG DOGS(R) name and/or dog logo. The Company sells its BIG BIG DOGS(R) line primarily through its retail stores, catalog and website, and also through selected wholesale accounts. NON-APPAREL PRODUCTS. Big Dogs further leverages its trademarks, characters and more popular graphics by applying them to a wide variety of adult's and children's non-apparel items, including pet products, plush animals and other toys, sporting goods, stationery, calendars, mousepads and screen savers. As with apparel accessories, new non-apparel products are developed and introduced based on whether they are consistent with Big Dogs' brand image and complement the Company's other products. As with apparel accessories, the graphics applied to these products have first proven popular on the Company's T-shirts, resulting in lower product development costs and inventory risk. In general, non-apparel items have higher gross margins than many of the Company's other products. MARKETING The Company strives to maintain a consistent brand image through the coordination of its merchandising, marketing and sales efforts. The goal of the Company's marketing efforts is to present a distinctive image of quality, value and fun that consumers will associate with the Company's products and thereby enhance the BIG DOGS(R) brand image. The BIG DOGS(R) brand image has been developed with relatively little advertising, as the Company believes its most effective marketing is its products themselves and their presentation in the Company's retail stores, catalog and website. The Company's catalog and website serve not only as a means of product distribution, but also as key marketing pieces for the Company's retail stores. Also important to the Company's marketing strategy is its targeted "grassroots" marketing activities. These activities include local and charity sponsorships (such as high school sports teams), community-oriented promotional events (such as the Company's annual dog parade in Santa Barbara), and corporate cross-promotions with leading consumer product companies (such as Nabisco and PETsMART.com). The Company trains and incentivizes its store managers to actively involve their stores in local, grassroots activities. In addition, the Company utilizes billboard advertising designed to direct customers to local Big Dogs retail stores. In August 1999, the Company entered into a strategic relationship with PETsMART.com, Inc., a premier internet site for pet supplies and pet care needs. Under their agreement, the Company and PETsMART.com each provide joint marketing efforts, including direct mail marketing and sponsorship on each other's websites. The Company also licensed its trademarks to PETsMART.com and its affiliate, PETsMART, Inc., for pet products. As part of this relationship, the Company invested $2.5 million in PETsMART.com. in a venture capital financing on the same terms provided to the other venture capital firm investors. The Company also received a warrant for the purchase of PETsMART.com stock exercisable at increasing prices starting above the price at which the Company invested in the venture capital financing. The Company sold a warrant to PETsMART.com for the purchase of 121,000 shares of common stock of the Company at an exercise price of $10 per share. PETsMART.com, Inc. has filed a registration statement for an initial public offering of its common stock; however, there is currently no public market for its stock and there can be no assurance that one will develop. RETAIL STORES Big Dogs seeks to create a distinctive and fun shopping environment in its stores through the innovative display of its graphic art and humor, including in-store "T-shirt walls" and other displays designed to immediately put the customer in the "Big Dog state of mind." In addition, the Company's cross-merchandising and colorful signage are designed to add excitement in the stores and prompt add-on purchases. While maintaining a consistent Big Dog "look" throughout the chain, many stores incorporate graphics and props which are consistent with the store's local environment (for example, a car racing theme in Indianapolis and an Old Spanish Days theme in Santa Barbara). By showcasing the Company's complete product line and broad assortment, Big Dogs stores offer something for everyone in the family and are particularly appealing to the dedicated Big Dogs customer. In 1999, the Company's retail stores contributed approximately 92% of total net sales. As of December 31, 1999, the Company operated 191 stores in 43 states and three stores in England and Canada. Big Dogs stores are typically located in tourist and recreation-oriented shopping locations and other casual environments where the Company believes consumers are more likely to be in the "Big Dog state of mind." In making site selections, the Company also considers a variety of other factors, including proximity to large population centers, area income, the prestige and potential customer-draw of the other tenants in the center or area, projected profitability, store location and visibility within the center, and the accessibility and visibility of the center from nearby thoroughfares. The table below sets forth the number of stores located in each state or country as of the end of 1999:
State No. of Stores State No. of Stores ----- ------------- ----- ------------- Alabama 2 Missouri 4 Alaska 1 Nebraska 1 Arizona 7 Nevada 3 California 36 New Hampshire 2 Colorado 3 New Jersey 2 Connecticut 2 New Mexico 1 Delaware 3 New York 7 Florida 11 North Carolina 6 Georgia 5 Ohio 4 Hawaii 2 Oklahoma 1 Idaho 2 Oregon 6 Illinois 4 Pennsylvania 8 Indiana 4 South Carolina 5 Iowa 1 Tennessee 6 Kansas 2 Texas 7 Louisiana 1 Utah 2 Maine 2 Vermont 1 Maryland 4 Virginia 4 Massachusetts 4 Washington 5 Michigan 5 Wisconsin 4 Minnesota 4 Wyoming 1 Mississippi 3 Country No. of Stores Country No. of Stores - ------- ------------- ------- ------------- United Kingdom 1 Canada 2
The Company operates its retail stores in both outlet and full-price formats, depending on the location. Big Dogs' traditional emphasis has been on outlet malls because those malls are often located in tourist areas and attract significant numbers of Big Dogs' targeted customers. The Company anticipates that the stores it opens in the near future will be in a variety of venues, including outlet malls, stand-alone stores in tourist areas, tourist-oriented malls, regional malls and metropolitan locations. The Company's outlet mall stores average approximately 2,800 square feet. The Company's outlet stores offer a complete and current line of the Company's products priced approximately 25% less than the same items are sold for in the Company's catalog and website, the Company's full-price stores and by other retailers. In addition, the Company has tested a smaller format store which it intends to open in certain circumstances. This smaller format will carry substantially all of the Company's product categories, but will be more densely merchandised to accommodate the smaller square footage. The Company opened 14 net new stores during 1999. The Company's cost to open a store in 1999, including leasehold improvements and furniture and fixtures, was approximately $50,000 (net of tenant improvement allowances), a reduction of approximately $17,000 per store compared to the prior year. The average per store initial inventory (partially financed by trade payables) for the new 1999 stores was approximately $64,000 and pre-opening expenses averaged approximately $13,000 per store. The average total cost to build new stores will vary in the future, depending on various factors, including local construction costs, changes in store format and design and tenant improvement allowances. Big Dogs store operations are managed by an Executive Vice President--Retail, four regional managers and approximately 23 district and area managers. Each of the stores is managed and operated by a store manager, an assistant manager and full-time and part-time sales associates. The Company seeks to further enhance its customers' shopping experience by developing a knowledgeable and enthusiastic sales staff to distinguish Big Dogs from its competition. In this regard, the Company has implemented employee training and incentive programs and encourages its sales associates to be friendly and courteous and to guide customers to graphics and products that tie into their individual interests. The Company believes its commitment to customer service enhances its ability to generate repeat business and to attract new customers. The Company also believes that the fun nature of its products and the growth of the Company create employee enthusiasm and positive morale that in turn enhance customer service and contribute to the fun shopping experience. NON-RETAIL DISTRIBUTION Non-retail channels of distribution, including catalog, wholesale and corporate sales, and, to a lesser extent, premium programs, international and internet sales, contributed approximately 8% of the Company's total net sales in 1999. CATALOG. Introduced in late 1992, the Company's catalog is a key marketing piece for its products and stores, and enables it to reach customers who are not located near a Big Dogs store. The Company's proprietary mailing list has been developed largely through sign-ups by customers in its retail stores rather than through active prospecting. Big Dogs' proprietary mailing list has over 700,000 active customer names. The Company's catalog and internet sales in 1999 were approximately $4.2 million, or approximately 4% of total net sales. WHOLESALE. During 1999, the Company sold to over 600 wholesale accounts throughout the United States. The Company's wholesale sales in 1999 were approximately $4.1 million, or approximately 4% of total net sales. INTERNET. In June 1999, Big Dogs launched a limited offering of its products online at its www.BIGDOGS.com website. Based on the initial success of this e-commerce site, the Company substantially upgraded the website and made its entire product line available online in October 1999. As a result, internet sales increased rapidly in the fourth quarter and totaled $0.6 million for the year. The Company believes it has significant opportunities for internet sales because of the Company's focus on graphics and apparel that is not only character-driven but basic in design and therefore easy to describe. The Company also believes the internet will enhance its product distribution by increasing access to customers who do not generally visit outlet centers where the Company's stores are primarily located. The Company is positive about its future prospects on the internet, especially since Big Dogs owns its own brand and controls its pricing and distribution. INTERNATIONAL. During 1999, the Company's sales outside of the United States were limited to three retail stores in Canada and England and incidental other sales. The Company plans to expand the sale of its products internationally through efficient, profitable and brand-enhancing means, which may vary by country and may include retail stores, exporting to resellers, licensing, catalog and internet sales. ENTERTAINMENT AND OTHER BRAND LEVERAGING. Big Dogs intends to carefully evaluate and pursue opportunities to leverage the power of the BIG DOGS(R) brand through various activities that are consistent with the brand image, which may include selective product licensing, co-branding and entertainment and media activities. In July 1999, the Company entered into an agreement with Hartbreak Films, Inc., the successful producer of the ABC television show "Sabrina, the Teenage Witch," for the joint development of a television series (or feature film or home video) based upon the Company's "Big Dog" character. The Company and Hartbreak are currently seeking the backing of a major studio for such project. SOURCING DOMESTIC AND INTERNATIONAL SOURCING. The Company does not own or operate any manufacturing facilities and sources its products through third-party contractors with manufacturing facilities that are primarily overseas. The Company believes that outsourcing allows it to enhance production flexibility and capacity, while substantially reducing capital expenditures and avoiding the costs of managing a large production workforce. In addition, outsourcing allows the Company to leverage working capital, transfer risk and focus its energy and resources on merchandising, marketing and sales. Big Dogs' domestic sourcing is primarily limited to graphic T-shirts. The bulk of its graphic T-shirt business is managed in-house. This includes management of screen printing and blanks, but not screen printing operations. The majority of Big Dogs' other products are manufactured overseas, primarily in Asia. In order to reduce the Company's exposure to production risks and delays arising from trade disputes, political disruption or other factors relating to any one vendor or country, the Company utilizes a diverse group of vendors. Big Dogs sources product from approximately 100 unaffiliated vendors, including over 35 foreign vendors in a number of countries, with a significant portion being produced by contractors with manufacturing facilities in China. In order to enhance its sourcing flexibility, the Company uses purchasing agents rather than operate its own foreign sourcing office. These agents assist the Company in selecting and overseeing third-party vendors, sourcing fabric and monitoring quotas and other trade regulations. The Company does not have supply contracts with any of its suppliers. Although the loss of major suppliers could have a significant effect on the Company's immediate operating results, the Company believes alternate sources of merchandise for most product categories are available at comparable prices and that it could replace these suppliers without any long-term adverse effect on the Company. The Company forecasts production requirements to secure necessary manufacturing capacity and quota. Since the Company's foreign manufacturers are located at greater geographic distances from the Company than its domestic manufacturers, the Company generally allows greater lead-times for foreign orders. However, due to the Company's focus on widely available basics rather than fashion items, the Company believes these lead times do not present significant risks. QUALITY CONTROL. The Company's quality control program is designed to ensure that all goods bearing BIG DOGS(R) trademarks meet the Company's standards. With respect to its products, the Company, through its employees and sourcing agents, develops and inspects prototypes of each product prior to manufacture. For apparel products, the Company, through its employees and sourcing agents, inspects the prototypes and fabrics prior to cutting by the contractors, establishes fittings based on the prototype and inspects samples. The Company or its sourcing agents inspect the final product prior to shipment to the Company's warehouse or at the warehouse prior to payment. MANAGEMENT INFORMATION SYSTEMS The Company is committed to utilizing technology to enhance its competitive position. The Company has put in place computer hardware, systems applications and networks that are the same as those used by a number of large retailers. These systems support the sales and distribution of products to its stores and customers and improve the integration and efficiency of its domestic and foreign sourcing operations. Big Dogs' MIS system provides integration of store, merchandising, distribution and financial systems. These systems include stock keeping unit ("SKU") and classification inventory tracking, purchase order management, open-to-buy, merchandise distribution, automated ticket making, general ledger, sales audit, accounts payable, fixed asset management, payroll and integrated financials. These systems operate on an IBM AS 400 platform and a Novell server network and utilize Island Pacific software. The Company's point-of-sale ("POS") system consists of registers providing price look-up, e-mail and credit card and check authorization. Through automated two-way communication with each store, sales information and e-mail are uploaded to the host system, and receiving, price changes and systems maintenance are down-loaded through the POS devices. Sales are updated daily in the merchandising report systems by polling sales from each store's POS terminals. The Company evaluates information obtained through daily polling, including a daily tracking of gross margin, to implement merchandising decisions regarding reorders, markdowns and allocation of merchandise. Wholesale and catalog operations are also supported by MIS applications from established vendors, designed specifically to meet the unique requirements of these segments of the business. These applications include customer service phone center, order processing and mailing list maintenance. ALLOCATION AND DISTRIBUTION OF MERCHANDISE Allocation and distribution of the Company's inventory is performed centrally at the store, merchandise classification and SKU levels using integrated third-party software. Utilizing its MIS capabilities, the Company's planning and allocation group works closely with the merchandising and retail departments to monitor and respond to customer purchasing trends and meet the seasonal and locale-specific merchandising requirements of the Company's retail stores. The Company's main warehouse facility and its mail order warehouse and fulfillment facility are located in a 136,000 square-foot distribution facility in Santa Fe Springs, California. All merchandise is delivered by vendors to this facility, where it is inspected, entered into the Company's allocation software system, picked and boxed for shipment to the stores or customers. The Company ships merchandise to its stores at least weekly, to provide a steady flow of merchandise. TRADEMARKS The Company utilizes a variety of trademarks which it owns, including the U.S. registered trademarks BIG DOGS(R), BIG DOG SPORTSWEAR(R), dog logo, BIG DOG(R), LITTLE BIG DOGS(R) and BIG BIG DOGS(R). In addition, the Company has registered certain of its trademarks or has registration applications pending in over 14 other countries. The Company regards its trademarks and other proprietary rights as valuable assets and believes that they have significant value in the marketing of its products. From time to time the Company discovers products in the marketplace that the Company believes infringe upon its trademark rights. The Company vigorously protects its trademarks against infringement, including through the use of cease and desist letters, administrative proceedings and lawsuits. COMPETITION Although the level and nature of competition differ among the Company's product categories, the Company competes primarily on the basis of its brand image, offering a unique combination of quality, value and fun, and on other factors including product assortment, price, store location and layout, and customer service. The markets for each of the Company's products are highly competitive. The Company believes that its long-term competitive position will depend upon its ability to anticipate and respond effectively to changing consumer demands and to offer customers a wide variety of high-quality, fun products at competitive prices. Although the Company believes it does not compete directly with any single company with respect to its entire range of merchandise, within each merchandise category the Company competes with well-known apparel and specialty retail companies such as The GAP, Eddie Bauer, Warner Brothers Stores and The Disney Stores, as well as a large number of national and regional department stores, specialty retailers and apparel designers and manufacturers. In addition, in recent years, the amount of casual sportswear and activewear manufactured specifically for department stores and sold under their own labels has significantly increased. Many of Big Dogs' competitors are significantly larger and more diversified and have substantially greater financial, distribution, marketing and other resources and have achieved greater recognition for their brand names than the Company. EMPLOYEES At March 1, 2000, the Company had approximately 600 full-time and 700 part-time employees. The number of part-time employees fluctuates significantly based on seasonal needs. None of the Company's employees are covered by collective bargaining agreements and the Company considers its relations with its employees to be good. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names, ages, titles and present and past positions of persons serving as executive officers of the Company as of March 1, 2000: NAME AGE POSITION - ---- --- -------- Andrew D. Feshbach 39 President, Chief Executive Officer and Director Douglas N. Nilsen 51 Executive Vice President - Merchandising Anthony J. Wall 44 Executive Vice President - Business Affairs, General Counsel and Secretary Andrew W. Wadhams 39 Executive Vice President - Retail Roberta J. Morris 40 Chief Financial Officer, Treasurer and Assistant Secretary ANDREW D. FESHBACH co-founded the Company in May 1992 and has served as President, Chief Executive Officer and as a director since that time. From June 1992 until May 1997, Mr. Feshbach also served as Chief Financial Officer of the Company. Mr. Feshbach co-founded Fortune Fashions Inc. ("Fortune Fashions"), a custom manufacturer of embellished apparel in 1991 and has served as a director since that time. From 1990 until the present, he has served as a Vice President of Fortune Financial, a private merchant banking firm owned by the Company's Chairman and majority stockholder, Fred Kayne. Mr. Feshbach serves as a director of The Right Start, Inc., an infant products retailer and catalog company. Mr. Feshbach has an M.B.A. from Harvard University. DOUGLAS N. NILSEN joined the Company in October 1995 and has served as Executive Vice President--Merchandising since December 1995. From October 1995 until December 1995, he served as Senior Vice President of the Company. From 1990 to September 1995, he served as Director of Merchandise at Walt Disney Attractions, Inc. for its U.S. theme parks and resorts, and in such capacity was responsible for merchandising all apparel and accessories. From 1976 to 1990, Mr. Nilsen was employed by Macy's California in various capacities, most recently as Vice President of Merchandising in both the Accessories and Men's Divisions. Mr.Nilsen has an M.B.A. from New York University. ANTHONY J. WALL joined the Company in September 1994 and has served as Executive Vice President since March 1996. He has also served as General Counsel and Secretary of the Company since September 1994. He served as a director of the Company from November 1995 until September 1997 and also as Senior Vice President from September 1994 until March 1996. From 1981 until 1994, Mr. Wall practiced as an attorney with Gibson, Dunn & Crutcher and, from 1990 until 1994, was a partner in the corporate department of that firm. Mr. Wall also serves as General Counsel of Fortune Fashions Inc., General Counsel of Fortune Casuals, LLC, a manufacturer of casual apparel for the mass market, and Vice President of Fortune Financial. Mr. Wall has a J.D. from the University of Southern California. ANDREW W. WADHAMS joined the Company in August 1996 as Senior Vice President--Retail and has served as Executive Vice President--Retail since January 1999. From January 1994 to June 1996, Mr. Wadhams served as Vice President of Retail Operations of Imaginarium, Inc., a retailer of children's games and educational items. From 1986 to November 1993, Mr. Wadhams was employed in various capacities by The Gap Inc. in its Gap, GapKids, Gap International and Banana Republic divisions, most recently as Regional Manager-- Retail Operations of Banana Republic from 1991 to 1994. ROBERTA J. MORRIS joined the Company in August 1993 and has served as Chief Financial Officer since March 1998, having previously served as Senior Vice President--Finance since January 1995 and as Vice President--Finance of the Company from August 1993 to January 1995. From 1988 to August 1993, Ms. Morris was employed by Deloitte & Touche LLP, a national accounting firm, serving as a Senior Manager from August 1992 until August 1993. Ms. Morris is a certified public accountant. ITEM 2. PROPERTIES The Company's corporate headquarters are in leased offices comprising approximately 24,000 square feet in Santa Barbara, California. This lease expires July 2004, with an option to extend for another 5 years. The Company's distribution facility is located in Santa Fe Springs, California in a building comprising approximately 136,000 square feet under a lease that expires in January 2008. The Company has an option to extend this lease for five years. The Company currently leases all of its store locations. Store leases are typically for a term of 5 years with a 5-year option and provide for base rent plus contingent rent based upon a percentage of sales in excess of agreed-upon sales levels. ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in litigation incidental to its business. Management believes that the outcome of the current litigation will not have a material adverse effect upon the financial statements of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The common stock of the Company is traded on the NASDAQ National Market under the symbol BDOG. The following table sets forth, for the period from the first quarter 1998 through the fourth quarter 1999, the high and low "sales" price of the shares of Common Stock of the Company, as reported on the NASDAQ National Market.
1999 1998 -------------- --------------- High Low High Low ----- ----- ----- ---- First Quarter $ 9 1/2 $ 4 5/8 $ 7 1/2 $ 5 1/8 Second Quarter 6 1/8 4 1/2 7 1/2 4 1/2 Third Quarter 6 5 1/8 5 5/8 2 7/8 Fourth Quarter 8 1/2 5 6 1/8 2 1/8
On March 1, 2000, the last sales price of the Common Stock as reported on the NASDAQ National Market was $5 5/8 per share. As of March 1, 2000, there were approximately 154 shareholders of record of the Company's Common Stock. The Company paid no dividends in 1998. In February 1999, the Board of Directors approved an annual discretionary cash dividend to be determined by the Board each year based on the Company's year-end sales results. This dividend was declared in the amount of $0.10 per share and paid in March 1999. The future amount and payment of such annual dividend will be at the discretion of the Board and will depend upon the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Board. On August 31, 1999, the Company sold a warrant for the purchase of 121,000 shares of common stock of the Company to PETsMART.com, Inc. for $121,000 with an exercise price of $10 per share. See Item 1. Business-Marketing. Such sale was deemed to be exempt from registration under the Securities Act of 1933 in reliance on Section 4(2), as a transaction not involving a public offering. 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, ------------------------------------------------------ 1999 1998 1997 1996 1995 --------- --------- -------- -------- -------- (in thousands, except per share and operating data) STATEMENT OF OPERATIONS DATA: Net sales........................ $ 109,573 $ 100,677 $ 86,181 $ 68,683 $ 51,541 Cost of goods sold............... 46,491 41,236 36,328 29,720 21,571 --------- --------- -------- -------- -------- Gross profit..................... 63,082 59,441 49,853 38,963 29,970 Selling, marketing and --------- --------- -------- -------- -------- distribution expenses.......... 50,125 47,809 39,549 32,309 24,814 General and administrative expenses....................... 5,020 5,276 4,738 3,937 3,167 --------- ---------- -------- -------- -------- Total operating expenses......... 55,145 53,085 44,287 36,246 27,981 --------- ---------- -------- -------- -------- Operating income................. 7,937 6,356 5,566 2,717 1,989 Interest (income) expense........ (395) (350) 1,268 1,647 1,189 --------- ---------- -------- -------- -------- Income before provision for income taxes.................... 8,332 6,706 4,298 1,070 800 Provision for income taxes....... 3,136 2,674 1,633 435 162 --------- ---------- -------- -------- -------- Net income....................... $ 5,196 $ 4,032 $ 2,665 $ 635 $ 638 ========= ========== ======== ======== ======== Net income per share Basic and diluted............... $ 0.43 $ 0.32 $ 0.24 $ 0.06 $ 0.07 Weighted average common shares Basic........................... 12,032 12,472 10,965 9,978 9,503 Diluted......................... 12,182 12,509 11,187 10,049 9,503 Cash dividend per common share... $ 0.10 $ 0.00 $ 0.00 $ 0.00 $ 0.00 OPERATING DATA: Number of stores(1) Stores open at beginning of period......................... 177 150 121 91 51 Stores added (net of closures).. 14 27 29 30 40 --- --- --- --- --- Stores open at end of period.... 191 177 150 121 91 Comparable stores sales increase(2) 1.0% 0.6% 6.6% 3.5% 8.2%
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- ------- ------- -------- (amounts in thousands) BALANCE SHEET DATA: Working capital................. $32,462 $30,348 $35,468 $13,742 $ 8,030 Total assets.................... 56,413 52,994 52,584 25,773 19,011 Total indebtedness (3).......... 0 0 0 15,697 10,732 Stockholders' equity............ 46,660 43,187 45,541 6,142 4,737
(1) Excludes two temporary stores open for a portion of 1995, four temporary stores open for a portion of 1996, and one temporary store open for a portion of 1998. (2) Comparable store sales represent net sales of stores open at least one full year. Effective December 31, 1997, the Company changed the way comparable store sales were calculated, and for comparison purposes all prior years have been restated. Stores are considered comparable beginning on the first day of the third month following the one-year anniversary of their opening. Stores that are relocated but remain in the same shopping area remain in the comparable store base. The change to this method did not significantly affect previously reported comparable store sales percentages. The Company believes this method better reflects the effect of one-time promotional events and is more consistent with industry methods. (3) Includes subordinated debt, obligations under the bank line of credit and obligations under capital leases. All indebtedness was paid off with a portion of the proceeds from the Company's initial public offering in September 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto of the Company contained elsewhere in this Form 10-K. GENERAL Big Dogs develops, markets and retails a branded, lifestyle collection of unique, high-quality, popular-priced consumer products, including activewear, casual sportswear, accessories and gifts. The number of Company stores has grown from 5 in 1993 to 191 as of December 31, 1999. 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, --------------------------------- 1999 1998 1997 ----- ----- ----- Net sales.............................. 100.0% 100.0% 100.0% Cost of goods sold..................... 42.4 41.0 42.2 ----- ----- ----- Gross profit........................... 57.6 59.0 57.8 Selling, marketing and distribution expenses............................. 45.8 47.5 45.9 General and administrative expenses.... 4.6 5.2 5.5 ----- ----- ----- Total operating expenses............... 50.4 52.7 51.4 ----- ----- ----- Income from operations................. 7.2% 6.3% 6.5%
YEARS ENDED DECEMBER 31, 1999 AND 1998 NET SALES. Net sales consist of sales from the Company's stores, catalog, website, and wholesale accounts, all net of returns and allowances. Net sales increased to $109.6 million in 1999 from $100.7 million for 1998, an increase of $8.9 million, or 8.8%. Of the $8.9 million increase, $7.6 million was attributable to stores not yet qualifying as comparable stores and $0.8 million came from the 1.0% comparable store sales increase for the period. Additionally, non-retail sales increased by $0.5 million for the year, which is primarily related to the Company's agreement with PETsMART.com. The increase in net sales in 1999 was attributable to continued growth in the number of stores and in the children's, big-size and non-apparel categories. The Company's children's, big-size and non-apparel products continued to increase to 45% of total retail net sales from 43% of total retail net sales in 1998. GROSS PROFIT. Gross profit increased to $63.1 million in 1999 from $59.4 million for 1998, an increase of $3.7 million, or 6.2%. As a percentage of net sales, gross profit decreased to 57.6% in 1999 from 59.0% in 1998. This decrease as a percentage of net sales was primarily attributable to an increased level of promotional activity and continued sales in products other than t-shirts, which have a lower margin. SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and distribution expenses consist of expenses associated with creating, distributing, and selling products through all channels of distribution, including occupancy, payroll and catalog costs. Selling, marketing and distribution expenses increased to $50.1 million in 1999 from $47.8 million in 1998, an increase of $2.3 million, or 4.8%. As a percentage of net sales, these expenses decreased to 45.8% in 1999 from 47.5% in 1998. In early 1998, the Company moved its distribution center to a larger facility in order to build the infrastructure necessary to accommodate growth. During the first half of 1998, the Company did not realize this growth and, therefore, the Company incurred a decrease in operating leverage. Subsequently, controls were put in place and improvements were made in the second half of 1998 and throughout 1999. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist of administrative salaries, corporate occupancy costs and other corporate expenses. General and administrative expenses decreased to $5.0 million in 1999 from $5.3 million in 1998. As a percentage of net sales, these expenses decreased to 4.6% in 1999 from 5.2% in 1998. The decrease in general and administrative expenses is attributable to improved cost controls in 1999, as well as the leverage of spreading them over a larger revenue base. INTEREST INCOME AND EXPENSE. Interest income remained constant at $0.4 million for the years ended 1999 and 1998. YEARS ENDED DECEMBER 31, 1998 AND 1997 NET SALES. Net sales increased to $100.7 million in 1998 from $86.2 million for 1997, an increase of $14.5 million, or 16.8%. Of the $14.5 million increase, $13.3 million was attributable to stores not yet qualifying as comparable stores and $0.5 million came from the 0.6% comparable store sales increase for the period. Additionally, non-retail sales increased by $0.7 million for the year. The increase in net sales in 1998 was attributable to continued growth in the number of stores and in the children's, big-size and non-apparel categories. The Company's children's, big-size and non-apparel products continued to increase to 43% of total retail net sales from 41% of total retail net sales in 1997. GROSS PROFIT. Gross profit increased to $59.4 million in 1998 from $49.9 million for 1997, an increase of $9.5 million, or 19.0%. As a percentage of net sales, gross profit increased to 59.0% in 1998 from 57.8% in 1997. This increase as a percentage of net sales was primarily attributable to better sourcing of certain key products. Also contributing to the percentage increase were continued improvements in merchandising, planning and allocation, which led to better product sell-throughs and less markdowns. SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and distribution expenses increased to $47.8 million in 1998 from $39.5 million in 1997, an increase of $8.3 million, or 21.0%. As a percentage of net sales, these expenses increased to 47.5% in 1998 from 45.9% in 1997. In early 1998, the Company moved its distribution center to a larger facility in order to build the infrastructure necessary to accommodate growth. During the first and second quarters of 1998, the Company did not realize this growth and, therefore, the Company incurred a decrease in operating leverage. Subsequently, controls were put in place and improvements were made in the third quarter. In the fourth quarter of 1998, the Company's selling, marketing and distribution expense was 38.3% of net sales as compared to 38.5% for the same period in 1997. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased to $5.3 million in 1998 from $4.7 million in 1997. As a percentage of net sales, these expenses decreased to 5.2% in 1998 from 5.5% in 1997, reflecting the leverage of spreading them over a larger revenue base. INTEREST INCOME AND EXPENSE. Interest income increased to $0.4 million in 1998 from $1.3 million in interest expense in 1997. In October 1997, the Company's initial public offering closed and all debt was paid off with a portion of the net proceeds. Cash was held in a money market fund. SEASONALITY AND QUARTERLY RESULTS The Company believes its seasonality is somewhat different than many apparel retailers since a significant number of the Company's stores are located in tourist areas and outdoor malls that have different visitation patterns than urban and suburban retail centers. The third and fourth quarters (consisting of the summer vacation, back-to-school and Christmas seasons) have historically accounted for the largest percentage of the Company's annual net sales and profits. In 1999, excluding sales generated by stores not open for all of 1999, substantially all the Company's operating income and approximately 28% and 35% of the Company's net retail sales were generated during the third and fourth quarters, respectively. The Company's quarterly results of operations may also fluctuate as a result of a variety of factors, including the timing of store openings, the amount of revenue contributed by new stores, changes in comparable store sales, changes in the mix of products sold, customer acceptance of new products, the timing and level of markdowns, competitive factors and general economic conditions. LIQUIDITY AND CAPITAL RESOURCES During 1999, the Company's primary uses of cash were for the build-out of the second-floor mezzanine at the Company's distribution facility, new stores, investment in PETsMART.com Series D preferred stock, payment of income taxes, payment of cash dividends and stock repurchases. The Company satisfied its cash requirements primarily from cash flow from operations, proceeds from the sale of a building and excess cash. In March 1998, the Company's Board of Directors authorized the Company to repurchase up to $10 million of its common stock. As of December 31, 1999, the Company had repurchased 1,183,200 shares for $7,006,000. Cash provided by operating activities was $11.8 million and $3.1 million in 1999 and 1998, respectively. The $8.7 million increase in cash provided from operations is primarily attributable to the decrease in inventories. At December 31, 1999 and 1998 inventories were $19.2 million and $23.3 million, respectively. Cash used in investment activities in 1999 and 1998 was $5.7 million and $6.8 million, respectively. Cash flows used in investment activities during 1999 related primarily to a $2.5 million investment in PETsMART.com Series D preferred stock, opening 14 net new stores for $1.0 million, retrofitting existing stores for $0.9 million, improvements at the Company's distribution facility including build-out of a second-floor mezzanine totaling $0.5 million, and issuance of long-term notes receivable to certain officers and employees totaling $0.5 million. Cash used in financing activities during 1999 and 1998 was $1.6 million and $6.4 million, respectively. In 1999 the Company paid a discretionary dividend of $0.10 per share to stockholders for a total dividend payment of $1.2 million and repurchased 100,000 shares of its common stock for a total purchase price of $0.5 million. In 1998 the Company repurchased 1,083,200 shares of its common stock for $6.5 million. The Company has a borrowing arrangement with a bank whereby the Company may, from time to time and upon approval from the bank, borrow up to $8 million. Such borrowings may be used for cash advances and letters of credit. The borrowing arrangement provides for interest at the bank's prime rate less 3/8% or 250 basis points over the LIBOR rate and is collateralized by substantially all the assets of the Company. As of December 31, 1999, the Company had no advances and $1.9 million of letters of credit outstanding. The letters of credit expire through April 5, 2000. In 1999, the Company's average cost to build a new store, including leasehold improvements, furniture and fixtures and landlord allowances, was approximately $50,000. The average total cost to build new stores will vary in the future, depending on various factors, including square footage, changes in store design, local construction costs and landlord allowances. The Company's average initial inventory for new stores opened in 1999 was approximately $64,000. The Company's initial inventory for new stores will vary in the future depending on various factors, including store concept and square footage. The Company believes that its existing cash balances and cash generated from operations will be sufficient to fund its operations and planned expansion through 2000. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company will adopt SFAS No. 133 in the year ending December 31, 2000. The Company anticipates that the adoption of SFAS No. 133 will not have a material impact on the Company's financial statements. YEAR 2000 The Year 2000 issue is the result of computer programs being written to use two digits to define year dates. Computer programs running date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in systems failure or miscalculations causing disruptions of operations. In March 1999, the Company completed the upgrading of its major software systems to a new release which has been certified as Year 2000 compliant. Additionally during 1999, the Company completed the internal testing of its information technology systems and addressed its non-information technology related systems. The Company also requested all third-party vendors to certify Year 2000 compliance. The costs of the Company's Year 2000 compliance project were not material to the Company's financial position. The Company has not experienced significant Year 2000-related issues over the Year 2000 transition. Although the Company believes it has taken the appropriate steps to address Year 2000 readiness, there is no guarantee that the Company's efforts will prevent a material adverse impact on the results of operations and financial condition. INFLATION The Company does not believe that inflation has had a material effect on operations in the past year. However, there can be no assurance that the Company's business will not be affected by inflation in the future. FORWARD-LOOKING STATEMENTS AND RISK FACTORS This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. The statements contained in this Form 10-K that are not purely historical are forward-looking statements, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. Such forward-looking statements include the discussions in this Management's Discussion and Analysis of Financial Condition and Results of Operations regarding the seasonality of business, expected new store openings and costs, the impact of year 2000 compliance and inflation risks. Uncertainties to which the foregoing and other aspects of the Company's business may be subject include those discussed below in regard to factors that may effect quarterly results discussed below, the factors affecting the costs of building new stores, and other risks and uncertainties discussed below. All forward-looking statements in this document are based upon information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. Notwithstanding the Company's growth in sales and profitability during recent periods, the Company faces significant risks and, as a result, there can be no assurance that the Company's historical growth will be indicative of future performance. Other factors that could cause actual results to differ materially from the forward-looking statements contained in this report, as well as affect the registrant's ability to achieve its financial and other goals, include, but are not limited to, the following: CHANGES IN CONSUMER PREFERENCES. The consumer products industry in general, and the apparel industry in particular, are subject to changing consumer demands and preferences. Although the Company believes its products historically have not been significantly affected by fashion trends, the Company's products are subject to changing consumer preferences. The Company's success will depend significantly on its ability to continue to produce popular graphics and products that anticipate, gauge and respond in a timely manner to changing consumer demands and preferences. In addition, consumer preferences could shift away from the Company's traditional graphic and logo-oriented merchandise. ABILITY TO ACHIEVE FUTURE GROWTH. The Company's continued growth will depend to a significant degree on its ability to open and operate profitable new stores, to increase net sales and profitability of the Company's existing stores, and to expand its other sources of revenue. There can be no assurance that new stores will achieve sales and profitability levels consistent with existing stores. The Company's retail expansion is dependent on a number of factors, including the Company's ability to locate and obtain favorable store sites, and to negotiate acceptable lease terms. In addition, there can be no assurance that the Company's strategies to increase other sources of revenue, which may include expansion of its catalog business, wholesale business, internet business, corporate sales, international sales, licensing, co-branding and media and entertainment activities, will be successful or that the Company's overall sales or profitability will increase or not be adversely affected as a result of any such expansion. DEPENDENCE ON KEY PERSONNEL. The success of the Company is significantly dependent on the performance of its key management, particularly Chief Executive Officer, Andrew Feshbach, and Executive Vice President--Merchandising, Doug Nilsen. DEPENDENCE ON THIRD-PARTY AND FOREIGN MANUFACTURERS. The Company does not own or operate any manufacturing facilities and is therefore dependent on third parties for the manufacture of its products. The loss of major suppliers, or the failure of such suppliers to timely deliver the Company's products or to meet the Company's quality standards, could adversely affect the Company's ability to deliver products to its customers in a timely manner. The majority of the Company's products are purchased from vendors with manufacturing facilities located outside the United States, primarily in Asia and particularly in China. The Company's operations could be adversely affected by events that result in disruption of trade from foreign countries in which the Company's suppliers are located. The Company's staff or agents periodically visit and observe the operations of its foreign and domestic manufacturers, but the Company does not control such manufacturers or their labor practices. Therefore the Company cannot necessarily prevent legal or ethical violations by its independent manufacturers, and it is uncertain what impact such violations would have on the Company. SUBSTANTIAL COMPETITION. The markets for each of the Company's products are highly competitive. The Company believes that its long-term competitive position will depend upon its ability to anticipate and respond effectively to changing consumer demands and to offer customers a wide variety of high-quality, fun products at competitive prices. FACTORS AFFECTING STORE TRAFFIC. The large majority of the Company's stores are located in tourist areas, tourist-serving areas and outlet malls, and the Company's sales depend on a high level of traffic in these locations. The Company, therefore, depends on the ability of these tourist destinations and malls to continue to generate a high volume of consumer traffic in the vicinity of the Company's stores. Tourism and outlet mall traffic may be adversely affected by domestic and international economic downturns, adverse weather, natural disasters, changing consumer preferences, highway or surface street traffic, the closing of high-profile stores near the Company's stores and declines in the desirability of the shopping environment in a particular tourist destination or mall. RELIANCE ON INFORMATION SYSTEMS. The Company relies on various information systems to manage its operations and regularly makes investments to upgrade, enhance or replace such systems. Substantial disruptions affecting the Company's information systems could have an adverse affect on its business. CONTROL BY EXISTING STOCKHOLDERS AND ANTI-TAKEOVER PROVISIONS. As of March 1, 2000, the Chairman of the Board, Fred Kayne, beneficially owned approximately 49.7% of the Company's outstanding Common Stock and the Company's current directors and executive officers, including Mr. Kayne, collectively beneficially own over 50%. As a result, Mr. Kayne, acting either individually or with the Company's current directors and executive officers, will be able to control the election of directors, and to determine the outcome of any other matter submitted to a vote of the Company's stockholders. This concentration of ownership, together with the anti-takeover effects of certain provisions of the Delaware General Corporation Law and the Company's Certificate of Incorporation and Bylaws, may have the effect of delaying or preventing a change in control of the Company, may discourage bids for the Company's Common Stock at a premium over the market price of the Common Stock and may adversely affect the prevailing market price of the Common Stock. VOLATILITY OF STOCK PRICE. The price of the Company's shares has and may continue to fluctuate based upon a number of factors, including, quarter-to-quarter variations in the Company's results of operations, fluctuations in the Company's comparable store sales, the performance of other manufacturers and retailers, and the condition of the overall economy. DEPENDENCE ON TRADEMARKS. The Company uses a number of trademarks, the primary ones of which are registered with the United States Patent and Trademark Office and in a number of foreign countries. There can be no assurance, however, that the Company will not be restricted in the future expansion of its use of its trademarks to certain new, non-apparel product categories. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not believe it has material exposure to losses from market-rate sensitive instruments. The Company has not invested in derivative financial instruments. The Company has a borrowing arrangement with a bank whereby the Company may borrow at a floating rate. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Company had no borrowings under this arrangement as of December 31, 1999 and 1998, respectively. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Index to Consolidated Financial Statements" at Item 14(a) for a listing of the consolidated financial statements filed as part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See "Executive Officers" in Part I, Item 1 hereof for information regarding the executive officers. Other information with respect to this item is incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of the registrant's fiscal year. ITEM 11. EXECUTIVE COMPENSATION Information with respect to this item is incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of the registrant's fiscal year. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to this item is incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of the registrant's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to this item is incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of the registrant's fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K (a) 1. The financial statements listed in the "Index to Consolidated Financial Statements" at page F-1 are filed as a part of this report. 2. Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. Exhibits included or incorporated herein: See "Index to Exhibits." (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the last quarter of the fiscal year covered by this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on March 29, 2000 on its behalf by the undersigned, thereunto duly authorized. BIG DOG HOLDINGS, INC. By /s/ANDREW D. FESHBACH --------------------- Andrew D. Feshbach Chief Executive Officer and President Each person whose signature appears below hereby authorizes Andrew D. Feshbach and Anthony J. Wall or either of them, as attorneys-in-fact to sign on his behalf, individually, and in each capacity stated below and to file all amendments and/or supplements to the Annual Report on Form 10-K. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------------------- ------------------------- -------------- /s/ANDREW D. FESHBACH Chief Executive Officer, March 29, 2000 - --------------------- President and Director Andrew D. Feshbach (Principal Executive Officer) /s/ROBERTA J. MORRIS Chief Financial Officer, March 29, 2000 - --------------------- Treasurer and Assistant Roberta J. Morris Secretary(Principal Financial and Accounting Officer) /s/FRED KAYNE Chairman of the Board March 29, 2000 - ------------------ Fred Kayne /s/STEVEN C. GOOD Director March 29, 2000 - ------------------ Steven C. Good /s/ROBERT H. SCHNELL Director March 29, 2000 - -------------------- Robert H. Schnell /s/KENNETH A. SOLOMON Director March 29, 2000 - --------------------- Kenneth A. Solomon /s/DAVID J. WALSH Director March 29, 2000 - ------------------ David J. Walsh BIG DOG HOLDINGS, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998, and 1997 PAGE ---- Independent Auditors' Report............................................. F-2 Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-3 Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997..................................................... F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31,1999, 1998, and 1997......................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997..................................................... F-6 Notes to the Consolidated Financial Statements........................... F-7 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Big Dog Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Big Dog Holdings, Inc. and subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Big Dog Holdings, Inc. and subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Los Angeles, California February 15, 2000, except for Note 10, as to which date is March 1, 2000 BIG DOG HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------- 1999 1998 ------------ ------------ ASSETS (Note 4) CURRENT ASSETS: Cash and cash equivalents.................................... $ 17,925,000 $ 13,458,000 Receivables: Trade, net.................................................. 425,000 592,000 Other....................................................... 543,000 314,000 Inventories (Note 8)......................................... 19,950,000 23,345,000 Prepaid expenses and other current assets.................... 1,107,000 811,000 Deferred income taxes (Note 5)............................... 875,000 872,000 ------------ ------------ Total current assets.......................................... 40,825,000 39,392,000 PROPERTY AND EQUIPMENT, Net (Notes 2 and 8)................... 12,037,000 12,983,000 INTANGIBLE ASSETS, Net........................................ 117,000 30,000 OTHER ASSETS (Note 3)......................................... 3,434,000 589,000 ------------ ----------- TOTAL......................................................... $ 56,413,000 $ 52,994,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable (Note 8).................................... $ 3,411,000 $ 3,494,000 Income taxes payable ........................................ 1,768,000 2,621,000 Accrued expenses and other current liabilities............... 3,184,000 2,928,000 ------------ ------------ Total current liabilities..................................... 8,363,000 9,043,000 DEFERRED RENT (Note 6)........................................ 878,000 764,000 DEFERRED GAIN ON SALE-LEASEBACK (Note 2)...................... 512,000 -- ------------ ------------ Total liabilities............................................ 9,753,000 9,807,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 6) STOCKHOLDERS' EQUITY (Notes 3, 7, and 10): Preferred stock, $.01 par value, 3,000,000 shares authorized, none issued and outstanding................................. $ -- $ -- Common stock $.01 par value, 30,000,000 shares authorized, 13,183,550 shares issued at December 31, 1999 and 1998...... 132,000 132,000 Additional paid-in capital................................... 42,417,000 42,296,000 Retained earnings............................................ 11,750,000 7,764,000 Treasury stock, 1,183,200 and 1,083,200 shares at December 31, 1999 and 1998, respectively.................... (7,006,000) (6,494,000) Notes receivable from common stockholders.................... (633,000) (511,000) ----------- ------------ Total stockholders' equity.................................. 46,660,000 43,187,000 ----------- ------------ TOTAL......................................................... $ 56,413,000 $ 52,994,000 ============ ============
See notes to consolidated financial statements. BIG DOG HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------------- 1999 1998 1997 --------- -------- --------- NET SALES (Note 3)........................ $ 109,573,000 $ 100,677,000 $ 86,181,000 COST OF GOODS SOLD (Note 8)............... 46,491,000 41,236,000 36,328,000 ------------- ------------- ------------- GROSS PROFIT.............................. 63,082,000 59,441,000 49,853,000 ------------- ------------- ------------- OPERATING EXPENSES: Selling, marketing and distribution...... 50,125,000 47,809,000 39,549,000 General and administrative (Note 8)...... 5,020,000 5,276,000 4,738,000 ------------- ------------- ------------ Total operating expenses................ 55,145,000 53,085,000 44,287,000 ------------- ------------- ------------ INCOME FROM OPERATIONS.................... 7,937,000 6,356,000 5,566,000 INTEREST (INCOME) EXPENSE, NET (Note 4).. (395,000) (350,000) 1,268,000 ------------- ------------- ------------ INCOME BEFORE PROVISION FOR INCOME TAXES........................... 8,332,000 6,706,000 4,298,000 PROVISION FOR INCOME TAXES (Note 5)...... 3,136,000 2,674,000 1,633,000 ------------- ------------- ------------ NET INCOME............................... $ 5,196,000 $ 4,032,000 $ 2,665,000 ============= ============ ============ NET INCOME PER SHARE BASIC AND DILUTED....................... $ 0.43 $ 0.32 $ 0.24 ============ ============ ============
See notes to consolidated financial statements. BIG DOG HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NOTES COMMON STOCK ADDITIONAL TREASURY STOCK RECEIVABLE --------------- PAID-IN RETAINED ------------------ FROM COMMON SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT STOCKHOLDERS TOTAL ------ ------ ---------- -------- ------- ------- ------------ --------- BALANCE, JANUARY 1, 1997 10,160,550 $ 102,000 $ 5,705,000 $ 1,067,000 $ (732,000) $ 6,142,000 Common stock issued..... 2,800,000 28,000 35,548,000 -- -- 35,576,000 Options exercised....... 55,000 1,000 170,000 -- -- 171,000 Warrants exercised...... 144,000 1,000 551,000 -- -- 552,000 Collections of notes receivable............. -- -- -- -- 185,000 185,000 Tax benefits related to exercise of stock options (Note 7)....... -- -- 250,000 -- -- 250,000 Net income.............. -- -- -- 2,665,000 -- 2,665,000 ---------- -------- ------------ --------- ---------- ---------- BALANCE, DECEMBER 31, 1997........ 13,159,550 132,000 42,224,000 3,732,000 (547,000) 45,541,000 Warrants exercised...... 24,000 -- 72,000 -- -- 72,000 Repurchased common stock (Note 7)......... -- -- -- -- 1,083,200 $(6,494,000) -- (6,494,000) Collections of notes receivable............. -- -- -- -- -- -- 36,000 36,000 Net income.............. -- -- -- 4,032,000 -- -- -- 4,032,000 --------- ------- ---------- --------- --------- ------------ ------- --------- BALANCE, DECEMBER 31, 1998........ 13,183,550 132,000 42,296,000 4,764,000 1,083,200 (6,494,000) (511,000) 43,187,000 Cash dividend paid....... -- -- -- (1,210,000) -- -- -- (1,210,000) Repurchased common stock (Note 7)......... -- -- -- -- 100,000 (512,000) -- (512,000) Warrants issued.......... -- -- 121,000 -- -- -- -- 121,000 Interest on notes receivable.............. -- -- -- -- -- -- (122,000) (122,000) Net income............... -- -- -- 5,196,000 -- -- -- 5,196,000 ---------- --------- ------------- ------------- --------- ----------- --------- ----------- BALANCE, DECEMBER 31, 1999........ 13,183,550 $ 132,000 $ 42,417,000 $ 11,750,000 1,183,200 $(7,006,000) $(633,000) $46,660,000 ========== ========= ============= ============= ========= =========== ========= ===========
See notes to consolidated financial statements BIG DOG HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................ $ 5,196,000 $ 4,032,000 $ 2,665,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................ 4,088,000 3,752,000 2,620,000 Provision for losses on receivables...................................... 21,000 26,000 25,000 (Gain) Loss on disposition of property and equipment..................... (503,000) 123,000 37,000 Deferred income taxes.................................................... (3,000) (728,000) -- Changes in operating assets and liabilities: Receivables............................................................. (83,000) (181,000) 194,000 Inventories............................................................. 3,395,000 (6,631,000) (1,311,000) Prepaid expenses and other assets....................................... (296,000) (67,000) (266,000) Accounts payable........................................................ (83,000) 727,000 1,532,000 Income taxes payable.................................................... (853,000) 1,226,000 1,245,000 Accrued expenses and other current liabilities.......................... 256,000 697,000 420,000 Deferred rent........................................................... 114,000 114,000 162,000 Deferred gain on sale-leaseback......................................... 512,000 -- -- ---=------- ----------- ----------- Net cash provided by operating activities.............................. 11,761,000 3,090,000 7,323,000 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................................... (4,745,000) (6,508,000) (5,285,000) Investments............................................................... (2,626,000) -- -- Proceeds from sale of property and equipment.............................. 2,134,000 13,000 -- Principal repayments of notes receivable.................................. 163,000 -- -- Issuance of long-term notes receivable and interest....................... (550,000) -- -- Other..................................................................... (69,000) (259,000) (23,000) ----------- ----------- ----------- Net cash used in investing activities.................................. (5,693,000) (6,754,000) (5,308,000) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock.................................... -- -- 35,576,000 Repurchase of common stock................................................ (512,000) (6,494,000) -- Proceeds from issuance of warrants........................................ 121,000 -- -- Proceeds from exercise of options......................................... -- -- 171,000 Proceeds from exercise of warrants........................................ -- 72,000 552,000 Principal repayments of notes receivable.................................. -- 36,000 185,000 Principal repayments of subordinated debt................................. -- -- (14,400,000) Principal repayments under capital lease obligations...................... -- -- (1,314,000) Dividends paid............................................................ (1,210,000) -- -- ----------- ------------ ----------- Net cash (used in) provided by financing activities.................... (1,601,000) (6,386,000) 20,770,000 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 4,467,000 (10,050,000) 22,785,000 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............................... 13,458,000 23,508,000 723,000 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR..................................... $17,925,000 $13,458,000 $23,508,000 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest................................................................. $ 30,000 $ 42,000 $1,659,000 Income taxes............................................................. $3,991,000 $2,176,000 $ 388,000
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: The Company entered into a capital lease obligation of $18,000 for equipment for the year ended 1997. In 1997, the Company recorded an increase to additional paid-in-capital of $250,000 related to tax benefits associated with the exercise of non-qualified stock options (see Note 7). In 1999, the Company recorded $122,000 in interest income related to notes receivable from common stockholders. See notes to consolidated financial statements. BIG DOG HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS The consolidated financial statements include the accounts of Big Dog Holdings, Inc. and its wholly owned subsidiary, Big Dog USA, Inc. (the "Company"). All significant intercompany accounts and transactions have been eliminated. The Company principally develops and markets apparel and other consumer products through Company-operated retail stores, wholesale accounts and a catalog. On September 25, 1997, the Company's $56,000,000 initial public offering of 4,000,000 shares of common stock at $14.00 per share was declared effective. Of the 4,000,000 shares, the Company sold 2,800,000 shares and certain stockholders sold 1,200,000 shares. The Company's net proceeds, after underwriting discounts and expenses associated with the offering were approximately $35,600,000. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISK The Company has $13,406,000 of cash on deposit with a high credit quality financial institution which is in excess of the Federal Deposit Insurance Corporation limit. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of receivables and accounts payable approximate their carrying values because of the short-term maturity of these instruments. CASH & CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents. INVENTORIES Inventories, consisting substantially of finished goods, are stated at the lower of cost (first-in, first-out method) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives, ranging from two to ten years. Amortization of leasehold improvements is computed using the straight-line method based upon the life of the improvement or the term of the lease, whichever is shorter. BIG DOG HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) INTANGIBLE ASSETS Intangible assets are stated at cost and amortized using the straight-line method over five years. Accumulated amortization was $693,000, and $665,000 at December 31, 1999 and 1998, respectively. IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. SELLING, MARKETING AND DISTRIBUTION EXPENSES Included in this classification are approximately $304,000, $474,000, and $547,000 in 1999, 1998, and 1997, respectively, of store preopening expenses, which are expensed as incurred. INCOME TAXES The Company accounts for income taxes using an asset and liability approach for measuring deferred income taxes based on temporary differences between the financial statement and income tax bases of assets and liabilities existing at each balance sheet date. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. The income tax provision or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred income tax assets (see Note 5). EARNINGS PER SHARE Basic earnings per share is calculated based on the weighted average number of shares outstanding. Diluted earnings per share is calculated based on the same number of shares plus additional shares representing stock distributable under stock-based plans computed using the treasury stock method. The following reconciles the numerator and denominator of the basic and diluted per-share computations for net income:
YEARS ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 ----------- ----------- ----------- Net income $ 5,196,000 $ 4,032,000 $ 2,665,000 =========== =========== =========== Basic Weighted Average Shares: Weighted average number of shares outstanding................ 12,032,000 12,472,000 10,965,000 Effect of Dilutive Securities: Options and warrants......................................... 150,000 37,000 222,000 ----------- ----------- ---------- Diluted Weighted Average Shares: Weighted average number of shares outstanding and common share equivalents..................................... 12,182,000 12,509,000 11,187,000 =========== =========== =========== Antidilutive options and warrants............................. 929,000 1,615,000 --
BIG DOG HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Antidilutive options consist of the weighted average of stock options for the respective years that had an exercise price greater than the average market price during the year. Such options are therefore excluded from the computation of diluted shares. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company will adopt SFAS No. 133 in the year ending December 31, 2000. The Company anticipates that the adoption of SFAS No. 133 will not have a material impact on the Company's financial statements. 2. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, --------------------------- 1999 1998 ----------- ----------- Leasehold improvements............................. $ 9,334,000 $ 8,400,000 Equipment and fixtures............................. 15,428,000 13,413,000 ----------- ----------- 24,762,000 21,813,000 Less accumulated depreciation and amortization..... 12,725,000 8,830,000 ----------- ----------- Property and equipment, net........................ $12,037,000 $12,983,000 =========== ===========
Depreciation and amortization expense on property and equipment totaled $4,060,000, $3,621,000 and $2,479,000 in 1999, 1998, and 1997, respectively. In May 1999, the Company purchased the building which houses its downtown Santa Barbara retail store for $1.6 million. In August 1999, the Company sold this building for $2.1 million and simultaneously entered into a 10-year lease. The $0.5 million gain related to the sale of this building is being deferred over the life of the lease. 3. INVESTMENT IN PETsMART.COM In 1999, the Company purchased $2,500,000 of Series D preferred stock and entered into a strategic relationship agreement and related agreements with PETsMART.com, Inc. Under these agreements, the Company and PETsMART.com will participate in cooperative marketing efforts, including direct mailings and sponsorship on each other's websites. Included as part of the strategic relationship, the Company bought a warrant to purchase common stock of PETsMART.com at varying exercise prices. The warrant is subject to partial revocation in the event certain performance criteria are not met. Additionally, the Company sold PETsMART.com a five-year warrant to purchase 121,000 shares of common stock of the Company at an exercise price of $10 per share for $121,000. The Company also provided consulting and other services to PETsMART.com for which it received $750,000 of income that is included in Net Sales. In conjunction with this investment, which is accounted for on the cost method, the Company also made loans totaling $400,000 to certain officers and other individuals of the Company to finance their purchase of the Series D preferred stock of PETsMART.com. Such secured notes bear interest at 9% per annum, payable annually with principal due in October, 2003. BIG DOG HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. SHORT-TERM BORROWINGS The Company has a borrowing arrangement with a bank whereby the Company may, from time to time and upon approval from the bank, borrow up to $8,000,000. Such borrowings may be used for cash advances and letters of credit. The borrowing arrangement provides for interest at the bank's prime lending rate less 3/8% or 250 basis points over the LIBOR rate, and is collateralized by substantially all assets of the Company. The Company has outstanding commitments under letters of credit totaling $1,950,000, at December 31, 1999. The letters of credit expire through April 6, 2000. 5. INCOME TAXES The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ------------ Current: Federal...................................... $ 2,672,000 $ 2,978,000 $ 1,438,000 State........................................ 467,000 424,000 195,000 ----------- ------------ ----------- Total............................................ 3,139,000 3,402,000 1,633,000 ----------- ------------ ----------- Deferred: Federal...................................... 4,000 (664,000) 5,000 State........................................ (7,000) (64,000) (5,000) ----------- ----------- ----------- Total............................................ (3,000) (728,000) -- ----------- ----------- ----------- Total income tax provision....................... $ 3,136,000 $ 2,674,000 $ 1,633,000 =========== ============ ===========
The Company's effective income tax rate differs from the federal statutory rate due to the following:
YEARS ENDED DECEMBER 31, ----------------------------------- 1999 1998 1997 ------ ------- ------ Federal statutory income tax rate................ 34.0% 34.0% 34.0% State taxes, net of federal benefit.............. 3.6 3.4 3.2 Other, net....................................... 0.0 2.5 0.8 ----- ---- ---- Total............................................ 37.6% 39.9% 38.0% ==== ==== ====
BIG DOG HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. INCOME TAXES (continued) Significant components of the Company's net deferred income tax assets are as follows:
DECEMBER 31, -------------------------- 1999 1998 ----------- ----------- Deferred income tax assets: Allowance for doubtful receivables and sales returns....... $ 36,000 $ 27,000 Accrued vacation........................................... 49,000 40,000 Inventory uniform capitalization........................... 423,000 714,000 Intangible assets.......................................... 164,000 168,000 State income taxes......................................... 129,000 114,000 Deferred rent.............................................. 347,000 298,000 Deferred gain on sale of building.......................... 202,000 -- Reserve liabilities........................................ 25,000 82,000 Other...................................................... -- 10,000 ----------- ---------- Total deferred income tax assets.............................. 1,375,000 1,453,000 ----------- ---------- Deferred income tax liabilities: Prepaid expenses........................................... (192,000) (108,000) Depreciation............................................... (308,000) (473,000) ----------- ---------- Total deferred income tax liabilities.......................... (500,000) (581,000) ----------- --- -------- Deferred income tax asset..................................... $ 875,000 $ 872,000 =========== ===========
6. COMMITMENTS AND CONTINGENCIES LEASES The Company leases retail stores, office buildings and warehouse space under lease agreements that expire through 2009. Future minimum lease payments under noncancelable operating leases are as follows:
YEARS ENDING DECEMBER 31, ------------------------- 2000............................................................ $ 15,183,000 2001............................................................ 12,286,000 2002............................................................ 9,413,000 2003............................................................ 7,598,000 2004............................................................ 5,685,000 Thereafter...................................................... 10,497,000 ------------ Total........................................................... $ 60,662,000 ============
The above amounts do not include contingent rentals based on sales in excess of the stipulated minimum that may be paid under certain leases on retail stores and common area charges. Additionally, certain leases contain future adjustments in rental payments based on changes in a specified inflation index. The effective annual rent expense for the Company is the total rent paid over the term of the lease, amortized on a straight-line basis. The difference between the actual rent paid and the effective rent recognized for financial statement purposes is reported as deferred rent. BIG DOG HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. COMMITMENTS AND CONTINGENCIES (continued) Rent expense for the years ended December 31, 1999, 1998, and 1997, totaled $15,636,000, $13,962,000, and $11,333,000, respectively, and includes contingent rentals of $329,000, $336,000, and $149,000 for the years ended December 31, 1999, 1998, and 1997, respectively. LITIGATION The Company is not involved in any legal proceedings other than certain actions arising in the ordinary course of its business. While the outcome of such proceedings and threatened proceedings cannot be predicted with certainty, in the opinion of management, the ultimate resolution of these matters individually or in the aggregate will not have a material adverse effect on the Company's business, financial condition or results of operations. 7. STOCKHOLDERS' EQUITY COMMON STOCK In March 1998, the Board of Directors authorized the repurchase of up to $10,000,000 of its common stock. The Company has repurchased 1,183,200 shares totaling $7,006,000 as of December 31, 1999. As of December 31, 1999, 1998, and 1997, there were unexercised warrants outstanding of 193,000, 72,000, and 96,000, respectively, to purchase common stock at exercise prices ranging between $10 and $3 per share. STOCK OPTIONS In March 1996, the Company issued a five-year option to its chairman to acquire 35,000 shares of the Company's common stock at an exercise price of $2.59 per share. In August 1996, the Company issued an additional five-year option to the chairman to acquire an additional 20,000 shares at an exercise price of $4.00. The exercise prices were determined by the board of directors to be equal to or greater than the fair value of the Company's common stock at the date of grant. During 1997, these options were exercised, and the Company recognized tax benefits of $250,000 resulting from the exercise of these nonqualified stock options which were recorded as additional paid-in capital in the consolidated financial statements. In January 1997, the Company adopted the 1997 Stock Option Plan authorizing the issuance of nonqualified stock options to directors, officers, employees, consultants and others to purchase common stock at prices equal to the fair value of the Company's shares at the grant dates. Such options vest one-third each year, beginning the year after the grant date and expire ten years from the date of grant. The 1997 Stock Option Plan was eliminated on August 1, 1997. In August 1997, the Company adopted the 1997 Performance Award Plan to attract, reward and retain officers and employees. The maximum number of shares reserved for issuance under this plan was 1,000,000. In February 1998, the Company amended the 1997 Performance Award Plan (the "Plan") to increase the maximum number of shares reserved for issuance under the Plan to 2,000,000. Awards under this plan may be in the form of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, performance shares, stock bonuses, or cash bonuses based upon performance. Options granted in 1997 vested at 20% each year, beginning one year after the grant date and expire seven to ten years from the date of grant. BIG DOG HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. STOCKHOLDERS' EQUITY (continued) In April 1998, the Company re-priced (by canceling and reissuing) 444,750 options granted under the Plan. The re-priced options have a ten-year life and either (i) have an exercise price of $6.50 per share (fair market value at grant date) and vest in equal installments on each anniversary of the April 7 grant date over the next five years or (ii) as to officers, have exercise prices ranging from $6.50 to $10.00 and vest at varying rates of 10% to 20% per year on each anniversary of the April 7 grant date over the next seven years. The following summarizes stock option activity for the periods presented:
WEIGHTED- NUMBER AVERAGE OF SHARES EXERCISE PRICE ------------ -------------- Balance at January 1, 1997........................... 55,000 3.10 Options granted .................................... 482,000 11.14 Options exercised................................... (55,000) (3.10) Options cancelled................................... (13,250) (12.04) ----------- Balance at December 31, 1997......................... 468,750 11.11 Options granted..................................... 1,970,150 6.92 Options cancelled................................... (1,197,450) (9.19) ---------- Balance at December 31, 1998......................... 1,241,450 6.32 Options granted..................................... 70,000 5.82 Options cancelled................................... (116,000) (6.59) ----------- Balance at December 31, 1999......................... 1,195,450 6.27 ===========
The following table summarizes information about stock options outstanding at December 31, 1999:
OPTIONS OPTIONS OUTSTANDING EXERCISABLE ---------------------------------------------------- ---------------------------- WEIGHTED- AVERAGE WEIGHTED- RANGE OF EXERCISE OPTIONS REMAINING AVERAGE OPTIONS WEIGHTED-AVERAGE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE ----------- ---------------- ---------------- -------------- ----------- ---------------- $3.50 282,500 9.0 years $ 3.50 62,500 $ 3.50 5.00 - 6.50 651,950 8.3 years 6.35 139,623 6.14 8.00 125,000 8.3 years 8.00 -- -- 10.00 - 14.00 136,000 8.1 years 10.05 2,400 10.88 --------- ------- 3.50 - 14.00 1,195,450 8.4 years 6.27 204,523 5.39 ========= =======
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. BIG DOG HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. STOCKHOLDERS' EQUITY (continued) SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income and net income per share had the Company adopted the fair value method as of the beginning of 1995. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1999, 1998, and 1997, respectively: expected volatility of 223%, 259%, and 7%; risk-free interest rates of 5.6%, 5.4%, and 6.4%; expected lives of 10.0, 9.9, and 7.7 years; and $0.10 per share cash dividend in 1999, no dividend in 1998 or 1997. Forfeitures are recognized as they occur. If the computed fair values of the 1999, 1998, and 1997 awards had been amortized to expense over the vesting period of the awards, pro forma net income would have been reduced to the pro forma amounts indicated below.
YEARS ENDED DECEMBER 31, ------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Net income: As reported.................................................... $ 5,196,000 $ 4,032,000 $ 2,665,000 Pro forma...................................................... 4,700,000 3,586,000 2,567,000 Net income per share: As reported: Basic and diluted.............................................. $ 0.43 $ 0.32 $ 0.24 Pro forma: Basic and diluted............................................... $ 0.39 $ 0.29 $ 0.23 Weighted average fair value of options granted during the year... $ 3.77 $ 5.04 $ 4.37
8. RELATED PARTY TRANSACTIONS Two of the Company's stockholders and directors have ownership interests in two former merchandise vendors to the Company. Merchandise inventory purchased from these related vendors totaled $2,182,000 and $8,636,000, for the years ended December 31, 1998 and 1997, respectively. There were no purchases made 1999. Included in accounts payable is $5,000 due to these vendors at December 31, 1998. The Company also received consulting services from related parties in 1997. Such expenses incurred for the year ended December 31, 1997 were $90,000, and are included in general and administrative expenses in the consolidated statements of operations. The Company engaged a related party to perform retail construction services. Construction services provided to the Company totaled $3,000, $871,000, and $371,000 for the years ended December 31, 1999, 1998, and 1997, respectively. BIG DOG HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. QUARTERLY FINANCIAL DATA (unaudited)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- -------- -------- ------- (in thousands, except per share) Year ended December 31, 1999: Net sales........................................... $ 16,743 $ 24,093 $ 29,596 $ 39,141 Gross profit........................................ 8,887 14,560 18,154 21,481 Selling, marketing and distribution expenses........ 11,323 12,107 12,240 14,455 General and administrative expenses................. 1,215 1,249 1,242 1,314 Total operating expenses............................ 12,538 13,356 13,482 15,769 (Loss) income from operations....................... (3,651) 1,204 4,672 5,712 Net (loss) income................................... (2,170) 734 2,887 3,745 Net (loss) income per share Basic and diluted.................................. $ (0.18) $ 0.06 $ 0.24 $ 0.31 Weighted average shares outstanding Basic.............................................. 12,100 12,029 12,002 12,000 Diluted............................................ 12,100 12,160 12,150 12,171 Year ended December 31, 1998: Net sales........................................... $ 14,212 $ 22,389 $ 28,354 $ 35,722 Gross profit........................................ 7,650 13,573 17,088 21,130 Selling, marketing and distribution expenses........ 10,450 11,766 11,895 13,698 General and administrative expenses................. 1,150 1,332 1,330 1,464 Total operating expenses............................ 11,600 13,098 13,225 15,162 (Loss) income from operations....................... (3,950) 475 3,863 5,968 Net (loss) income................................... (2,279) 327 2,400 3,584 Net (loss) income per share Basic and diluted.................................. $ (0.17) $ 0.03 $ 0.20 $ 0.30 Weighted average shares outstanding Basic.............................................. 13,150 12,476 12,183 12,100 Diluted............................................ 13,150 12,532 12,204 12,110
10. SUBSEQUENT EVENT In March 2000, the Company declared a cash dividend of $0.10 per share payable on March 27, 2000 to stockholders of record at the close of business on March 11, 2000. INDEX TO EXHIBITS
Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation(1) 3.1A Cerificate of Correction(1) 3.2 Amended and Reinstated Bylaws(2) 4.1 Reference Is herby made to Exhibits 3.1, 3.1A and 3.2 4.2 Specimen Stock Certificate (1) 10.1 Grid Promissory Note of Company to Isreal Discount Bank dated 2/19/98(3) 10.3 Form of Warrants issued November 4, 1996(1) 10.10 Amended and Restated 1997 Performance Award Plan(3) 10.10A Form of Employee Nonqualified 1997 Performance Award Plan(1) 10.10B Terms and Conditions for Non-Qualified Options Granted under the Amended and Restated 1997 Performance Award Plan(3) 10.10C From of Eligible Director Non-Qualified Stock Option Agreement(3) 10.11 Lease between Big Dog USA, Inc. and The Prudential Insurance Company of America dated November 4, 1997(2) 10.12 Lease Agreement between Big Dog Holdings, Inc. and S.V.B. Properties dated as of June 1, 1994, as amended by Lease Agreement dated as of December 1, 1994, Second Lease Amendment dated as of March 1, 1996, Third Lease Amendment between Big Dog Holdings and Greeland Realty LLC dated as of July 22, 1996, (1) and Fourth Lease Amendment dated December 18, 1998(3) 10.14 From of Indemnification Agreement(1) 21.1 List of Subsidiaries of Big Dog Holdings, Inc.(1) 24.1 Power of Attorney (included in signature page) 27.1 Financial data schedule
(1) Incorporated by reference from the Company's S-1 Registration Statement (No. 333-33027), as amended, which became effective September 25, 1997. (2) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. (3) Incorporated by reference from the Registrant's Annual Report on From 10-K for the year ended December 31, 1998. EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 17925 0 1059 (91) 19950 40825 24762 (12725) 56413 8363 0 0 0 132 46528 56413 109573 109573 46491 55145 0 0 (395) 8332 3136 5196 0 0 0 5196 0.43 0.43
-----END PRIVACY-ENHANCED MESSAGE-----